35918   Canadian Broadcasting Corp. v. SODRAC 2003 Inc.

Intellectual Property — Copyright — Licences

On appeal from a judgment of the Federal Court of Appeal (2014 FCA 84), setting aside in part one decision of the Copyright Board of Canada, and upholding another decision of the Copyright Board of Canada

CBC is both a producer and a broadcaster of television programs: it broadcasts its own original programs as well as those that it has licensed or bought from third parties, and it shows these programs on television and the Internet. SODRAC is a collective society organized to manage the reproduction rights of its members. When broadcasters, including CBC, produce a program, they make several kinds of copies. “Synchronization copies” incorporate musical works into an audiovisual program. A “master copy” is the final copy created when synchronization is complete. CBC loads the master copy into its digital content management system and makes several copies of the completed program, and thus of the music incorporated into the program, for internal use. Where these copies are made to facilitate broadcasting, they are called “broadcast‑incidental copies”.

Following Bishop v. Stevens, [1990] 2 S.C.R. 467, in which it was held that “ephemeral” copies engaged the reproduction right in s. 3(1)(d) of the Copyright Act and that the right to make those copies is not implied by law in a broadcast licence, SODRAC began to differentiate between synchronization copies and copies made for other purposes. Initially, it granted free synchronization licences to licence holders, but it began asking producers to pay for those licences in or about 2006. In 2008, when SODRAC and CBC were unable to come to an agreement for the renewal of CBC’s licence, SODRAC asked the Board to set the terms of a licence for November 14, 2008, to March 31, 2012. CBC argues that broadcast‑incidental copies do not engage the reproduction right, or, in the alternative, that if a licence covering broadcast‑incidental copies is required, it should be implied from its synchronization licences or the synchronization licences of third party producers.

In 2012, the Copyright Board held that CBC’s broadcast‑incidental copying activity engaged the reproduction right, that a licence for such copies could not be implied from synchronization licences covering the production process, and that CBC required a separate reproduction licence to legitimize its broadcast‑incidental copying. The Board valued this licence based on a ratio used in the commercial radio context and found to be equally applicable to the television context. The Board later issued an interim licence to take effect after the expiry of the 2008‑2012 licence that extended the terms of that licence on an interim basis, subject to minor modifications. The Federal Court of Appeal upheld both the 2008‑2012 licence and the interim licence that followed, subject to minor amendments.

Held 7:2 (Abella and Karakatsanis JJ., dissenting): The appeal should be allowed. The 2008‑2012 licence and the interim licence should both be set aside and the decisions of the Copyright Board should be remitted to the Board for reconsideration.

Per McLachlin C.J. and Rothstein, Cromwell, Moldaver, Wagner, Gascon and Côté JJ.:

Because of the unusual statutory scheme under which the Board and the court may each have to consider the same legal question at first instance, the standard of correctness applies to whether broadcast‑incidental copies engage the reproduction right, and thus whether the Copyright Act allows SODRAC to seek a licence for CBC’s broadcast‑incidental copying. A standard of reasonableness applies to each of the remaining issues.

The Board was correct in finding that broadcast‑incidental copying engages the reproduction right, consistent with this Court’s decision in Bishop and the context of the statutory scheme set out in theCopyright Act. Though this Court’s subsequent decisions in Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34, [2002] 2 S.C.R. 336, and Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34, [2012] S.C.R. 231 (“ESA”), have refined the understanding of the purposes of copyright law, the central holding in Bishop, that ephemeral copies engage the reproduction right, remains sound. Ephemeral copies are not exempted by ss. 30.8 and 30.9, and nothing in the text, context or legislative history of ss. 3(1), 30.8 or 30.9 supports the view that broadcast‑incidental copies are not reproductions under the Act. While balance between user and right‑holder interests and technological neutrality are central to Canadian copyright law, they cannot change the express terms of the Act.

The Board was also correct in finding that a licence to make broadcast‑incidental copies should not be implied from synchronization licences issued by SODRAC. The synchronization licences do not give any indication that they included the right to make broadcast‑incidental copies. The separation of synchronization and broadcast‑incidental licences does not offend technological neutrality. Recognizing production and broadcasting as distinct activities validly subject to disaggregated licences does not impose new layers of protections and fees based solely on technological change. Economic considerations also justified the practice of dividing synchronization and broadcast‑incidental copy licences.

However, the Board erred in failing to consider the principles of technological neutrality and balance in setting the valuation of this licence. The principle of technological neutrality recognizes that, absent parliamentary intent to the contrary, the Act should not be interpreted or applied to favour or discriminate against any particular form of technology. In the regulatory context, the principle of technological neutrality applies to valuation of a reproduction licence, so the Board should compare the value derived from the use of reproduction in the old and new technologies in its valuation analysis.

To maintain a balance between user and right‑holder interests, the Board must also assess the respective contributions of the user and the copyright‑protected works to the value enjoyed by the user. It must have regard for factors it considers relevant in striking a balance between user and right‑holder rights when fixing licence fees. Relevant factors will include the risks taken by the user, the extent of the investment made by the user in the new technology, and the nature of the copyright protected work’s use in the new technology.

The 2008-2012 licence is set aside as it relates to the valuation of CBC’s television and Internet broadcast-incidental copies and the decision of the Board in that regard is remitted to the Board for reconsideration of that valuation in accordance with the principles of technological neutrality and balance. The Board’s valuation methodology did not give any indication that the principles of technological neutrality and balance were considered in the way it fixed the SODRAC reproduction royalties payable by CBC. The Board did not compare the value contributed by the copyright protected reproductions in the old and new technology. It also failed to take into account the relative contributions made by the use of copyright protected works and the risk and investment by the user in its new technology, as required by the balance principle.

It was reasonable to use the interim licence to maintain the status quo and to use the 2008‑2012 statutory licence as the status quo in this case. However, because the interim licence was based on the terms of the 2008‑2012 licence, it is set aside and the Board’s decision in that regard is also remitted for reconsideration consistent with the principles guiding the redetermination of the 2008‑2012 licence.

Finally, the Board has the statutory authority to fix the terms of licences pursuant to s. 70.2, but the user retains the ability to accept or decline those terms.

Per Abella J. (dissenting):

The Board’s decision to impose royalty fees for broadcast‑incidental copies was unreasonable.

The Copyright Act strikes a careful balance between promoting the public interest in the encouragement and dissemination of creative works, and obtaining a just reward for creators. Maintaining the balance that best supports the public interest in creative works is the central purpose of the Copyright Act. The question is how to preserve this balance in the face of new technologies that are transforming the mechanisms through which creative works are produced, reproduced and distributed. The answer lies in applying a robust vision of technological neutrality as a core principle of statutory interpretation under the Copyright Act.

A reasonable interpretation of the scope of the reproduction right must consider the wording of ss. 3(1) and 3(1)(d) in the context of the overarching purpose of the Copyright Act and the central principle of technological neutrality. Adopting a literal interpretation of the right in s. 3(1)(d) would leave no room for the principle of technological neutrality, which is rooted in the words “to produce or reproduce the work or any substantial part thereof in any material form whatever”. Technological neutrality ensures 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. Technological neutrality consists of media neutrality and functional equivalence. Media neutrality seeks to ensure that copyright doctrine evolves to embrace new technologies, preserving copyright not only in the medium in which the work is created but all existing and future media in which the work might be expressed. As long as the creative expression survives the transfer to a new medium, copyright in the work will survive.

Functional equivalence, on the other hand, focuses on what the technology at issue is doing, rather than on the technical modalities of how it is doing it. This leads to interpretations of the Act that give functionally equivalent technologies similar treatment. It also avoids imposing copyright liability on technologies and activities that only incidentally implicate copyright. This case involves an application of functional equivalence.

Broadcast‑incidental copies are those created to achieve a broadcast by providing the necessary technical modalities. In the context of copyright law, their creation cannot be seen as distinct from the core activity of broadcasting. A broadcast‑incidental copy is not transformed into a separate reproduction of the work simply because the technical imperatives of effecting a broadcast require the presence of multiple copies. Broadcast‑incidental copies do not, as a result, attract separate royalties. To conclude otherwise is to doom both technological neutrality and the ability of copyright law to preserve the delicate balance between the rights of copyright‑holders and the public’s interest in the dissemination of creative works.

SODRAC holds only the reproduction rights in the works in its repertoire. It is not entitled to royalties associated with the broadcasting of those works, which are paid to the Society of Composers, Authors and Music Publishers of Canada (SOCAN). SODRAC is attempting to claim royalties in this case for the method of broadcasting the musical works to the public, despite never before receiving royalties for broadcasting activities.

Sections 30.8 and 30.9 of the Copyright Act were a legislative response to this Court’s holding inBishop v. Stevens, which was based on a literal interpretation of s. 3(1)(d). It held that the licensing of a performance right did not implicitly authorize ephemeral recordings of the performance for the purposes of effecting the broadcast. These discrete legislative responses to a specific judicial interpretation of the Copyright Act are far from representing the kind of express statutory language needed to displace such fundamental objectives and principles underpinning the Copyright Act as technological neutrality and balance. They were meant to provide greater certainty that certain classes of ephemeral recording are not to attract copyright liability and to maintain technological neutrality, not to be a defining statement on the content of the reproduction right, or which kinds of copies will trigger it.

The Federal Court of Appeal’s suggestion that “more copies mean more value and thus, more royalties” violates technological neutrality by imposing additional copyright liability on the use of more efficient copy‑dependent broadcasting technologies, by erroneously tying the compensation owed to creators of copyrighted works to how efficiently the user exercises the right that was bargained for, and by artificially raising the cost of broadcasting. It also fails to take account of the fact that broadcasters are required to make certain broadcast‑incidental copies in order to comply with CRTC regulations and that the CBC already pays royalty fees for broadcasting rights to SOCAN.

The principle of technological neutrality requires that the interpretation and application of the Copyright Act focus on the essential character of the activity and not on the technical modalities by which it is achieved. Modern digital technologies that are dependent on the creation of incidental copies do not change the essence of the broadcasting activity, and imposing additional fees for such copies raises the cost of broadcasting, an expense the consumer will be made to bear. Attaching copyright liability to incidental copies created as a result of improvements in broadcasting technologies therefore 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’s articulation and application of the principle of technological neutrality on the issue of valuation is wholly inconsistent with the established case law in that it ties copyright‑holder compensation to actions of the user that are 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 majority proposes two novel factors for the Board to consider when striking a balance between user and copyright‑holder interests: (1) the nature of the copyright protected work’s use in the new technology; and (2) the risks taken and the extent of the investment made by the user in the new technology. While the first factor is consistent with the balance articulated in Théberge, the second is not. If this new second factor is followed to its logical conclusion, users who make a sufficiently large investment or take sufficiently high risks may, by doing so, deprive the copyright‑holder of any entitlement to compensation for the use of the protected works.

As this Court confirmed in Entertainment Software Association, technological neutrality operates to prevent imposing additional, gratuitous fees on the user simply for the use of more efficient technologies. Focusing the inquiry on the value that the technology is creating for the user, as opposed to the functional result created by the technology, misconstrues technological neutrality. A technological innovation may well create value for the user by increasing efficiencies, driving down costs, or allowing the user to remain competitive. But SODRAC, the copyright‑holder, is not entitled to be compensated for how efficiently the CBC uses technology to achieve its broadcast.

The question of whether the Copyright Board ought to have imposed royalty fees on the CBC for the creation of incidental copies that arise as a technical part of the digital broadcasting process, is at the heart of the Copyright Board’s specialized mandate and therefore reviewable on a reasonableness standard. Extricating the various components of the Board’s decision and subjecting each to its own standard of review analysis represents a significant and inexplicable change in this Court’s standard of review jurisprudence. It risks creating an unworkable framework for the judicial review of administrative decision‑making and may well be seen as a way to give reviewing courts wider discretion to intervene in administrative decisions, as had been done in the pre‑Dunsmuir era through the use of the “preliminary question doctrine”.

Per Karakatsanis J. (dissenting):

There is agreement with Abella J.’s decision on the merits and in the result, but not with her position on the standard of review. Instead, there is agreement with the majority’s conclusion that the correctness standard applies to whether broadcast‑incidental copies engage the reproduction right and that the reasonableness standard applies to the balance of the decisions of the Copyright Board. However, the general approach taken by the majority to their analysis of the standard of review is not endorsed. In this respect, although this Court’s jurisprudence permits the isolation of a particular question of law on an exceptional basis, it does not require a separate standard of review analysis for each issue. An issue‑by‑issue approach, within each decision, unnecessarily complicates an already overwrought area of the law.

Joint Reasons for Judgment written by Rothstein J.

Dissenting Reasons by Abella J.

Separate Dissenting Reasons by Karakatsanis J.

Neutral Citation: 2015 SCC 57 Docket No. 35918