The Supreme Court does some technology things

Nice house“Broadcast-incidental copies” does not sound like a major jumping off point for a huge case about copyright and technology, but apparently it is. And now I have to figure out what the hell it means, in light of the Supreme Court of Canada’s decision in CBC v. SODRAC from a couple of weeks ago. Goddammit.

Let’s start with some, uh, disclosure I guess? Name-dropping? One of the intervenors in the case was the Centre for Intellectual Property Policy, of which I am an associate member. Not that I do much as an associate member; frankly I don’t even know what it means. One of the lawyers arguing for the CIPP was David Lametti, a newly-elected Liberal MP, who was my Masters’ thesis advisor and is a friend. Congrats David, for winning on your point (I think; this case is complicated!).

OK let’s dive in. So the CBC was making “broadcast-incidental copies” (man I am not typing that out this whole post. Let’s call them “BICs” and hope the fine folks at the Bic lighter and pen company don’t sue me) of their, uh, programs. These programs had music in them, and when programs have music in them, you have to get a license to use that music in the programs. That’s copyright law in a nutshell. But what are these BICs exactly? The SCC sorta kinda explains:

Broadcasting activities are complex, however, and broadcasters often engage not only in the telecommunication of musical works as part of the airing of a program, but also in making copies of programs, and thus of the music incorporated therein, for internal use.

So BICs are copies for internal use, not to be broadcast. They are incidental to the broadcast, get it? Now, the next important basic law point is the “reproduction right” of copyright law. That means if you write or create something, like music, you have the right to reproduce it in whatever form. Here, let the Copyright Act explain:

3. (1) For the purposes of this Act, “copyright”, in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever,(…) and includes the sole right (…)

(d) in the case of a (…) musical work, to make any sound recording, cinematograph film or other contrivance by means of which the work may be mechanically reproduced (…)

Yeah, I edited the shit out of it so it’s readable. I left in the relevant portions for this case though! So the music composer has the sole right to reproduce, and if the CBC wants to use some music in its programs (thus “reproducing” the music), it must obtain a license to do so – the license fee is then paid to the composer. How are these license royalties collected and paid out? Something called “collective societies”, with acronyms you’ve heard of – SOCAN, ACTRA, ASCAP, and [drumroll…] SODRAC. What is SODRAC?

SODRAC is a collective management society within the meaning of the Copyright Act. It grants licences for all reproductions of musical and artworks. SODRAC represents authors, composers, music publishers and creators and co-creators

Sure, “SODRAC” stands for something, but really who cares. The point is it grants licenses to reproduce music, collects the money from the licensee and pays it to the composer.

So you’ve got the basics down now. What’s the deal here in this case? If you had to boil the issue down to 20 words or less, it would be: when the CBC makes BICs, does it have to pay a license to SODRAC for the reproduction right? Answer: yes. And we’re done!

Uh, no, of course we’re not done. You know us lawyers, we talk and talk and talk. And I wouldn’t be writing about this if it was just some stupid case about the reproduction right. So let’s take a few steps back and really dive in. There is something called the Copyright Board, whose job (in part) is to establish whether and in what amount the collective societies should be paid in certain circumstances for a license for a copyrighted work. So SODRAC went to the Board in 2008 and asked them to set the license to reproduce music in CBC BICs. CBC had said screw you, we are already paying other licenses to you SODRAC, enough already! The Board said sorry, CBC, you have to pay fees to SODRAC for the music in these BICs, and here is how much it is. Let’s just skip the Federal Court of Appeal where this case was at one point and jump right to the Supreme Court, who says:

The Board was correct in finding that broadcast-incidental copying engages the reproduction right, consistent with this Court’s decision in Bishop v. Stevens, [1990] 2 S.C.R. 467, and the context of the statutory scheme set out in the Copyright Act

But! BUT! This is the important part, and why we are writing this what-will-be-very-long post:

However, in my respectful opinion, the Board erred in failing to consider the principles of technological neutrality and balance in setting the valuation of this licence. I would remit this matter to the Board for reconsideration of the valuation of the 2008-2012 licence for CBC’s television and Internet broadcast-incidental copies applying the principles of technological neutrality and balance.

Technological neutrality! Balance! Internet broadcasts! Finally this case gets interesting. So what’s up with that. Here’s the Court saying how the Board valued the BIC licenses:

the Board employed a ratio methodology and found that the appropriate royalty payable to SODRAC for these reproductions was to be determined as a percentage of the royalties CBC paid to secure communication rights for music that it broadcast on radio and television

Ooh boy that doesn’t seem right, just doing math! I said we’d skip the Court of Appeal, but the Supreme Court zooms in on something that court wrote, and for good reason, because of more math:

those additional copies add value to the enterprise. As a result, they attract additional royalties, not necessarily on a per-copy basis but on the basis of the additional value generated by those copies. Simply put, more copies mean more value and thus, more royalties

Uh, no, not simple. The Court says this is crap (actual quote: “[this notion] is out of step with the principles of technological neutrality and balance”). The BICs were for internal use! How are they generating value or revenue? We’ll come back to this, because the Court kind of ignores their own point about it being crap.

Anyway, the Court does some analysis about statutes, and the “balancing” principle of another Supreme Court copyright case, Théberge. That principle is summarized in this famous quote from the case:

The Copyright Act is usually presented as a balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator

The court says that even if that is true (well it is) it does not trump the fact that the Copyright Act itself says there is a reproduction right, and thus a license should be paid to reproduce. Blah blah blah, let’s get to the technological neutrality stuff. The Court:

The principle of technological neutrality is recognition that, 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.

This principle of technological neutrality (let’s call it TechNeut for fun and my laziness) was discussed very heavily by the Court in 2012, in ESA v. SOCAN, part of the copyright pentalogy of SCC cases of that year. Which you know about, because I wrote about it! You all remember the famous line from the case – “The Internet is simply a technological taxi.” Now, how should TechNeut apply in valuating the licenses? The Court writes:

While highly unlikely, where users are deriving the same value from the use of reproductions of copyright protected works using different technologies, technological neutrality implies that it would be improper to impose higher copyright licensing costs on the user of one technology than would be imposed on the user of a different technology.

Sure that makes sense, but it doesn’t really apply here. Wait, there’s more!

The converse is also true. Where the user of one technology derives greater value from the use of reproductions of copyright protected work than another user using reproductions of the copyright protected work in a different technology, technological neutrality will imply that the copyright holder should be entitled to a larger royalty from the user who obtains such greater value. Simply put, it would not be technologically neutral to treat these two technologies as if they were deriving the same value from the reproductions.

Seems sorta logical, at least the way they wrote it here. If one technology generates more money, it should cost more money (or should it? hold that thought). So in this case:

if CBC derives greater value from the use of broadcast‑incidental copies in its digital technology than it did under its prior analog technology, this is a factor in favour of the copyright holder being entitled to greater royalties for use of its copyright protected work in CBC’s digital technology

The Board did not do that. Bad Board! You know what else it didn’t do? Discuss the balance of user rights and creator rights from Théberge that I was talking about 5 paragraphs ago:

When it is tasked with fixing licence fees, the Board must have regard to factors it considers relevant in striking a balance between the rights of users and right-holders

Which it didn’t do. And the balance and TechNeut go hand in hand, as the Court approvingly cites this quote from the ESA case:

The traditional balance between authors and users should be preserved in the digital environment

There’s (in part) the victory for my friend David Lametti (and all of us users). The preservation of user rights in the digital context. Yay user rights! David also wins because the Court says (as I mentioned above) the Board must consider user rights (balancing them with the rights of the rights-holders) in setting the license fee. More on David in a second. But also important here is the general point that we should now consider TechNeut not just to interpret the Copyright Act, but to apply it:

Indeed, it would be inconsistent to require a technologically neutral interpretation of the Copyright Act but not require a technologically neutral application of the Act

Take that home. The Court then goes on to in detail rip the Board’s valuation methodology to shreds, and is none too happy with the Court of Appeals either. They go through the specific factors the Board should be considering in setting the value of the license fee (more on this later). But it’s these general points that you should be taking home for now – TechNeut in applying the Act, user rights, balance, etc.

So one more thing on users, because of my friend David. This one is kind of boring tbh, but it was really the point that the CIPP was arguing (and won!) so I’m bringing it up (also, I’m sure David would want me to note that the praise should go to his colleagues, not him). So there is a whole bit about “interim” licenses. Often, the value of licenses are set retroactively – so for example in this case the final decision of the Board in 2012 was for licenses from 2008-2012. There is an “interim license” which the user (in this case the CBC) pays while they wait for the final decision. Should users (the CBC) be forced to be bound by a retroactive decision, or by a Board decision generally? NO! S. 70.2 of the Copyright Act talks about the Board having the authority to set the license fees (as I mentioned above). S. 70.4 then goes on to say:

Where any royalties are fixed for a period pursuant to subsection 70.2(2), the person concerned may, during the period, subject to the related terms and conditions fixed by the Board and to the terms and conditions set out in the scheme do the act with respect to which the royalties and their related terms and conditions are fixed…

Note the bolded “may”. The user has a choice dammit! As the Court concludes:

I find that licences fixed by the Board do not have mandatory binding force over a user; the Board has the statutory authority to fix the terms of licences pursuant to s. 70.2 , but a user retains the ability to decide whether to become a licensee and operate pursuant to that licence, or to decline.

Yay again user rights! The Court is pretty much done now, and sends the whole shebang back to the Board so they can set the license fee properly, taking into account the user, balancing rights, and assorted specific principles of TechNeut the Court has outlined; all of which the Court says the Board should have done in the first place.

The Dissents

Oh  Supreme Court, you just can’t agree on anything can you. Seven of Nine (nerd joke) judges were fine with everything I just explained in this post. Two were not. Justice Abella was particularly annoyed. She doesn’t think BICs should even have license payments at all! In her opinion they should not engage the reproduction right. And tbh, I kind of agree with her. She delves into what a BIC really is. Then she points out:

The broadcast-incidental copies described above are strictly technical in nature in that they are created solely for purposes integral to the process of broadcasting television programs, and are not sold or made available to the public, or used for any independent revenue-generating purpose.

Yeah, good point! Why should someone have to pay for a license when the thing doesn’t generate revenue? The whole point of copyright law and licensing is to compensate creators when you make money off their creation be using it in something you sell. Justice Abella even brings in TechNeut and how she would apply it:

Broadcast-incidental copies are created in order to achieve the central activity of broadcasting by providing the technical modalities to achieve the broadcast and to comply with regulatory requirements. In the context of copyright law, their creation cannot be seen as distinct from the central activity of broadcasting without violating the principle of technological neutrality.

Ooh, snap and burn majority! She explains that even further, in a big F*ing paragraph but it’s worth reading:

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 the technical modalities by which it is achieved. The essential character of the broadcasting activity does not change with the adoption of modern digital technologies that are dependent on the creation of incidental copies in order to accomplish the activity. Each broadcast-incidental copy is not a separate reproduction of the work under the Act simply because the technical imperatives of effecting a broadcast require the presence of multiple copies. They 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.

She has plenty of other reasons why the CBC should not have to pay license fees for the music in those BICs. Like the fact that the CRTC forces the CBC to make some of the BICs. Like the fact that the music creators all get money when the program is broadcast. Her whole point is that because of advancing technologies, the CBC has to make more BICs just because the way the new technologies work. Why should the rights holders get more money for that? She rubs the majority’s face in it:

That is why I have difficulty accepting Rothstein J.’s analysis. The result of his approach is to penalize broadcasters for implementing advancements in broadcasting technologies by creating artificial entitlements to compensation under the Copyright Act for incidental activities that were never intended to be covered by the Act.

Amen. She also is none too pleased with the Court’s reliance on the Bishop case, which was from 1990. Shit has changed since then. [/looks at old pics of me with 1990 hair – she’s right!]. The shit that’s changed is that we must now look beyond just the statute to interpret the law. In this case, that means a not-so-literal reading of what it means to “reproduce”; we should be instead looking at “an approach that examines whether it is the kind of ‘reproduction’ the Act was intended to protect” (my italics). The Act intended to protect reproductions that had some economic value; BICs do not. QED.

She then even rips into the majority’s use of balance for good measure. For even more good measure, she rips into their interpretation of TechNeut too!

By focusing the inquiry on the value that the technology is creating for the user, as the majority does, as opposed to the functional result created by the technology, it misconstrues technological neutrality. A technological innovation may create value for the user by increasing efficiencies, driving down costs, or allowing the user to remain competitive. But as this Court observed in Entertainment Software Association, a copyright holder like SODRAC is not entitled to be compensated for how efficiently a user like the CBC uses technology to achieve its broadcast. Those gains have nothing to do with the copyright holder’s legitimate interests, or with the balance struck between the copyright holder and the user.

Sorry for the big blockquotes, but they are really useful to show the length and breadth of Justice Abella’s annoyance. I’ll stop now.

OK sorry one more thing about the dissent. A lot of it was based on the majority’s opinion (which I did not mention above, because holy crap there is a lot going on here) that for the purposes of the Board valuating a license fee, one of the factors they should look at is”the risks taken and the extent of the investment made by the user in the new technology.” They felt that economic investment of the user should influence the level of the license fee. And pay attention here, this is what they say – the more the user spends on new technologies, the more the user gains in efficiency, the more the copyright holder should be compensated. The fuck? So more fees for the copyright holder when the user uses better technologies? I had to read it five times to be sure I got it right. It is a re-wording of what I thought was reasonable earlier, that higher economic value for the user should mean more royalties for the copyright holder. But when you look at it in terms of efficiency and risk, it sounds kinda off. Justice Abella was having none of that crap either, saying that the effect of this principle:

is to tie copyright holder compensation to actions of the user that are unrelated and irrelevant to the rights held in the protected works

The other dissenter was Justice Karakatsanis. He actually agrees with Abella 100% about the whole “BICs should note even engage the reproduction right” thing and all her other juicy points. He just disagrees with her on a procedural point (the standard of review) which for sure you do not want to hear about because that is the most boring thing in law ever.

SuperHappyFuntime Analysis Hour!

OK we can all agree on one a couple of things – the importance of TechNeut and balance and user rights. These are good things. You can take them to the bank. All 9 judges agree on that. The judges just don’t necessarily agree on how to apply these principles. That sucks for us, but life goes on.

That’s not much of an analysis, so lets look at what Michael Geist says. He, like me, finds a lot to like in the dissent. He asks a poignant question, focused on that “risk and investment of the user” factor Justice Abella (and I) did not like:

if technological neutrality is a foundation of Canadian copyright law (as everyone agrees), why would the amount of the investment in different technologies designed to achieve the same purposes lead to different amounts of copyright royalties?

It should not! Also, Geist writes:

The court has previously emphasized the need to prevent imposing additional, gratuitous fees on the user simply for the use of more efficient technologies. This decision runs directly counter to that, by actually supporting higher royalties for more efficient technologies.

I just said that above! Though less intelligently for sure, but with more swears. If the whole point of TechNeut is that the mode of technology should not influence the leveling of license fees (which I thought was the point of ESA, and really it is), this decision makes that principle kind of questionable maybe? The way the majority actually used TechNeut seems a bit whacky. At least they think it’s important. That’s something I guess.

And let’s get back to the Court ignoring its own solid advice. Remember this bit?

The notion that “more copies mean more value and thus, more royalties” is appealing in its simplicity. However, it is out of step with the principles of technological neutrality and balance.

Well we agree with that point. But the Court brought this up in the context of evaluating the value of the license fee. By that point they had gone beyond the basic point of asking should there be a license fee. Maybe they should have mentioned it earlier? Because if they agree that just making a copy does not necessarily provide more value, that would have been a good point to determine if a license should be paid! If a copy does not provide value, why should it be paid for? Now, the majority says there will always be some value in a copy, even if it is minimal, so there will always be at least a minimal license fee. Sounds like BS to me. What’s the value in making an internal copy? What do I know, I don’t sit on the Supreme Court. At least Justice Abella seems to make the same point I want to. So maybe I should be on the Supreme Court.

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