While most Canadians are completely unaware of its existence, let alone its function, the Copyright Board is one of the most important administrative agencies in Ottawa in terms of the scope of the financial support it provides to the so-called Canadian "cultural industries." The Board approves royalty payments to copyright owners such as musical composers, performers, record companies, authors and book publishers that amount to almost $500 million each year.
The Board considers and certifies tariff proposals that are filed by the different collective societies that represent copyright owners. Once approved by the Board, these tariffs are paid by those who use copyright-protected works in public settings. This includes radio and television services, satellite and Internet streaming services, hotels and restaurants, fitness clubs and educational institutions.
The Board's Slow Tariff Approval Process
These royalty payments clearly contribute to the economic sustainability of the cultural industries in Canada. However, since its creation in 1989, the Board has become increasingly overwhelmed with the responsibility of dealing with a variety of new tariffs arising from the legislative recognition of new rights of copyright, the development of digital technologies, and the introduction of a wide range of new Internet services. Without the necessary staff and financial resources to respond to these proposals, the Board has struggled to keep pace with this workload, and has fallen seriously behind in terms of its ability to deal in a timely manner with the various tariff proposals that regularly come before it.
Simply put, through no apparent fault of its own, the Copyright Board's tariff-approval process has become sluggish and incapable of certifying royalty rates within a reasonable amount of time. For example, a recent report indicated that, from start to finish, it takes about 3.5 years for a tariff proposal to meander its way through the Board's complex hearing system, and that tariffs are typically approved more than two years after the date upon which they are supposed to take effect.
During this lag period, copyright owners may not be receiving any royalty payments for the use of their work. On the other hand, copyright users are incurring an increasing (and unknown) financial liability that, once a tariff is finally approved by the Board, may be payable in respect of several years in the past.
The Board's difficulty in dealing with tariff proposals in an efficient and timely manner has had a very real impact on the introduction of new and innovative digital services to Canadian consumers. The principal reason for this is that these services—for example, some Internet music streaming services—have no way of knowing how much it will cost them to operate in Canada. If it remains unaddressed, this situation threatens to make Canada a technological "backwater."
The Federal Government's Discussion Paper
Because of this situation—from the perspective of copyright owners, users, and consumers—the federal government has recently issued a discussion paper soliciting public comment as to how the Copyright Board's hearing processes and speed might be improved. In this discussion paper, the government has made 13 separate suggestions as to how the Board's decision-making might be made more efficient, with the overall goal of "speeding things up" from the time a tariff is first proposed to when it can go into effect.
These 13 suggestions include such ideas as: imposing strict deadlines as to when the Board must complete a particular step in its hearing cycle and render its decisions; implementing a mandated case management system; empowering the Board to award costs against parties that have unduly delayed proceedings; requiring parties to provide more details in support of their respective arguments earlier on in the hearing process; allowing the collective societies to bypass the Board completely by entering into private licensing agreements with users; requiring tariff proposals to be filed sooner than is currently the case; and imposing more strict procedural steps on the parties.
One of the more likely controversial suggestions made in the discussion paper relates to the listing of specific criteria that the Board would be required to take into account in reaching its decisions. In this regard, the Board currently has unfettered discretion to consider any relevant evidence that would enable it to approve what are known as "fair and equitable" tariff rates.
This wide-ranging discretion has been recently criticized by various music industry groups that believe the Board should be required to apply a narrow list of economic factors in setting tariff rates, particularly market rates that would supposedly reflect what a willing buyer would pay to a willing seller.
These music industry groups apparently believe that the Board's adherence to such a list of criteria would tend to increase the rates payable to copyright owners. We would note that this is not necessarily the case, and that implementing such a requirement could also make the system less efficient, as it could have the perverse effect of discouraging users from reaching agreements with the collective societies (as users could be hesitant to set a price that the Board might use as a market rate proxy in some future tariff proceeding).
Based on the Board's past tariff decisions, it seems clear that the Board is already perfectly able to assess and weigh the competing evidence that is presented to it during its various hearings by the collective societies and the user groups.
In other words, there is no valid reason why the Board's power to consider this evidence should be restricted by being required to apply a specific list of economic factors or criteria which should receive special attention in reviewing a particular tariff proposal. Instead, the Board, as an expert economic tribunal, should be able to decide for itself which evidence or factors are most important within the context of a particular tariff application. Imposing a list of criteria on the Board would, according to this view, encroach on the Board's freedom to establish fair and equitable royalty rates.
The government's discussion paper is open for public comment until Friday, Sept. 29. Access the paper here.
Whatever legislative, regulatory, or procedural changes the government may adopt following this consultative process, it is unlikely that any significant improvements will occur at the Board unless and until it obtains the necessary staff and financial resources that are commensurate with its current tariff-setting workload. Although the discussion paper specifically indicates that the issue of the Board's funding is not part of this consultation, it may, in fact, be the most important issue that, if addressed, would have the greatest impact on the Board's ability to respond to tariff proposals in a more timely manner.