SCC gives with one hand and takes with the other: new category of correctness review—but no new royalty stream

In Society of Composers, Authors and Music Publishers of Canada v. Entertainment Software Association¹, the Supreme Court considered whether making a work available for downloading or streaming entitled the author to a royalty, in addition to the royalty payable when the work is actually downloaded or streamed by a user. The Copyright Board of Canada had said “yes,” but the Court said “no.” In doing so, the Supreme Court established the first new category in which a court sitting in review of an administrative tribunal will engage in correctness review.

What you need to know

• New category of correctness review: For the first time since Vavilov, the Court created a new category of correctness review: where courts and administrative tribunals have concurrent jurisdiction over statutory interpretation at first instance.
• No new royalty stream: The so-called “making available right” in section 2.4(1.1) of the Copyright Act (the Act) is not an independently protected activity triggering separate royalties or payments for an author under section 3(1)(f) of the Act (the right to communicate a work via telecommunication).
  • Making a work available for streaming and the act of streaming itself by an end user are part of the same act of performance of a work and trigger only one royalty payment. Making a work available for downloading, on the other hand, does not engage the author’s performance right, but only an author’s reproduction right when the work is downloaded by the end user.

Analysis

Background and the decisions below

The case concerned whether making a work available for downloading or streaming (as opposed to the downloading or streaming itself) is a separately compensable activity under the Act. Specifically, the issue was how to interpret section 2.4(1.1) of the Act, which modified the definition of telecommunication of a work to include “making it available” for a member of the public to access it at a time and place of their choosing. This provision had been introduced to the Act in part to implement Canada’s obligation under the WIPO Copyright Treaty.

In proceedings to determine royalties payable for online music services, the Copyright Board of Canada concluded that section 2.4(1.1) deemed the act of making works available to be a separately protected act under section 3(1)(f) of the Act. The effect of the Board’s decision was that a work distributed online for streaming would be subject to two royalties—one when the work was made available for streaming, and one when a user actually streamed or downloaded the work. The Federal Court of Appeal disagreed and overturned the Board’s decision. The Supreme Court of Canada granted leave to appeal.

Standard of review

Prior to the Supreme Court’s decision in Vavilov, the courts would judicially review the Copyright Board’s interpretation of the Copyright Act on a correctness standard. The theory was that deference was not appropriate because there are aspects of the Act where issues of interpretation could come before either the Board or the courts at first instance (e.g., courts in the context of a copyright infringement action and the Board in the context of setting tariffs). But in Vavilov, the Court held that the presumptive standard of review for all administrative decision-makers is the more deferential “reasonableness” review. Vavilov set out five categories of exceptions where correctness review would still be appropriate. While Vavilov did not foreclose the possibility of new categories, the Court said that these would only occur in “rare and exceptional circumstances” where “legislative intent or the rule of law will require a derogation from the presumption of reasonableness review”, and that this would not be routinely found.

In this case, the majority of the Court found sufficient intention. It established a sixth category of correctness review in circumstances where courts and administrative bodies have concurrent first instance jurisdiction over the interpretation of a statute. It explained that this new category of correctness review accords with legislative intent and promotes the rule of law. In particular, granting concurrent jurisdiction to courts rebuts the presumption that Parliament wanted an administrative tribunal to decide an issue free from undue judicial interference. On the contrary, it signaled a desire for judicial involvement. Moreover, the rule of law requires that certain questions be answered consistently and definitively. It would be inconsistent to subject the same legal questions to different standards of review depending on whether it was a court or the Board that had answered the question at first instance. Moreover, the Court expressed a concern that different standards of review could lead to conflicting statutory interpretations. While the Court accepted in Vavilov that conflicting interpretations within an administrative tribunal may be tolerable, in ESA (one of the Court’s previous copyright decisions) it held that conflicting interpretations as between courts and administrative tribunals would not be.

The dissent in this latest decision disagreed with creating a new category of correctness review. They noted that the Court in Vavilov had undertaken a thorough review of the jurisprudence, including recent correctness cases in the copyright context, and deliberately chose not to make first instance concurrent jurisdiction an exception. In uncharacteristically strong terms, the dissent held that creating this exception “flouts stare decisis principles and therefore runs directly counter to the rule of law”. It cautioned that the majority’s approach could lead to endless litigation concerning possible exceptions to reasonableness and erode the presumption of reasonableness going forward.

Application

Both the majority and dissent agreed with the Court of Appeal that the Board’s interpretation of the Actcould not stand. The majority held that the Board’s interpretation was inconsistent with the opening paragraph of section 3 of the Act, which exhaustively sets out the three copyright interests that authors have in their works: the right to produce or reproduce a work, the right to perform a work and the right to publish it for the first time. If Parliament intended to treat the act of “making available” as a separate act, it would have added it as a fourth interest in the opening paragraph.

The majority also held that the Board’s interpretation violated the principle of technological neutrality, since it would require users to pay additional royalties when a work is made available online that would not have to be paid if a retailer made a work available in a physical store for purchase.

Finally, the majority confirmed that the Board’s interpretation of section 2.4(1.1) was not required under the WIPO Copyright Treaty. Article 8 of the treaty requires member countries to protect on-demand transmissions and give authors the right to control when and how their works are made available for downloading or streaming. It does not tell member countries how to do that. Canada could effectively implement these obligations by relying on a combination of rights: the author’s performance right when a work is made available for on-demand streaming, and the author’s right to authorize reproductions when a work is made available for downloading. It did not require Canada to create a new, separately compensable “making available” right.

The dissent concluded that the Board’s decision was unreasonable because it was inconsistent with previous Supreme Court authority on section 3(1)(f) and resulted in duplicate royalties when a transaction takes place online, which violated the principle of technological neutrality.

Conclusion

The case is significant in both the copyright and the administrative law contexts. In copyright, the decision makes it clear that the “making available right” is not a new right under the Act, triggering separate royalties. In administrative law it shows a willingness by the Supreme Court to expand correctness review in the right circumstances. While we suspect that the dissent’s prophesies of doom (or at least “endless litigation”) are largely unfounded, whether the Court permits further erosion of the reasonableness standard remains to be seen.