Supreme Court Reaffirms Technological Neutrality in Copyright Royalty Disputes

In Canadian Broadcasting Corporation v. SODRAC 2003 Inc. (SODRAC),¹ the Supreme Court of Canada unanimously reaffirmed the principle of technological neutrality in copyright law. However, the justices disagreed among themselves on how the principle should be applied. The issue in this case arose when SODRAC, a collective society that collects reproduction royalties on behalf of French-language musicians, began seeking additional royalties for incidental copies of music made by the Canadian Broadcasting Corporation (CBC) in the process of broadcasting programs that contain music produced by SODRAC members.

The majority held that the principle of technological neutrality cannot override the express words of section 3(1)(d) of the Copyright Act,² which gives the creator the sole right to make reproductions of the work.³ In a concurring judgment, Justice Abella disagreed with this technical reading of the Copyright Act, and would have decided that the broadcast-incidental copies do not engage the authors' reproduction rights.⁴

What You Need To Know

• While technological neutrality remains a fundamental principle of copyright law, it cannot override express statutory provisions.
• The Copyright Act requires that users of content compensate creators for incidental copies created in the process of broadcasting, even if those copies are involuntary or mandated. This includes the "as aired" copies which the Canadian Radio-Television and Telecommunications Commission (CRTC) requires broadcasters to create and retain.
• Copyright Board royalties must be set according to the "value derived" from a particular technology. Where different users of a copyrighted work derive the same value using different technologies, the copyright licensing costs to the users should be the same. However, where the user of one technology derives a greater value from a copyrighted work than a user of another technology, the copyright holder is entitled to a larger royalty from the user who obtains a greater value.

Background

SODRAC is a collective society that licenses the reproduction of its members' music. The CBC (or freelance producers who provide programs to the CBC) licenses the reproduction of music from SODRAC and pays licence fees for the master copy of any program that contains the music. The CBC also pays royalties for broadcasting to SOCAN, another collective society. SODRAC has no claim to royalties from broadcasting.

In 1998, SODRAC began to differentiate between the master copy and incidental copies made by broadcasters for other purposes, such as copies created in order to comply with various broadcasting regulations. At the time, SODRAC gave a free licence to broadcasters who created incidental copies. In 2006, SODRAC began to ask broadcasters to pay for copies incidental to broadcasting. When SODRAC and the CBC were unable to agree on a renewal of the CBC’s licence, the matter was referred to the Copyright Board. The decision of the Copyright Board was appealed to the Federal Court of Appeal and eventually reached the Supreme Court of Canada.

The Supreme Court considered two questions. The first was whether incidental copies made in the process of broadcasting engage the copyright holder's reproduction rights. If they do, the Court had to determine the principles that the Board should apply in fixing royalties for these incidental copies.

On the first question, the CBC argued that a balancing of the interests of copyright holders and copyright users, including applying the principle of technological neutrality, dictates a finding that incidental copies do not trigger reproduction rights. The CBC also argued that imposing costs for using a digital broadcasting system that creates incidental copies amounts to inflicting a gratuitous cost for the use of a more efficient technology.⁵

On the second question, the CBC argued that if a licence is needed to make broadcast-incidental copies, it should be implied from the licence covering the master copy, and not be the subject of a further royalty.

The Supreme Court's Decision

The majority, led by Justice Rothstein, determined that copies that are incidental to broadcasting engage the mechanical reproduction right held solely by the copyright holder. The majority based its decision on a literal reading of section 3(1)(d) of the Copyright Act, which provides that the copyright holder has the sole right to 'make any sound recording, cinematograph film or other contrivance by means of which the work may be mechanically reproduced or performed." ⁶ Recourse to the principles of copyright law, such as balancing the interests of copyright holders with the interests of users, is not required because the language of the statute is clear.⁷ The majority also decided that it would be contrary to the clear intention of Parliament to apply the principle of technological neutrality to find that broadcast-incidental copies do not trigger reproduction rights.⁸

The majority then considered how royalties for incidental copies should be calculated. After defining and reaffirming the principle of technological neutrality—that the Copyright Act should not be interpreted or applied to favour or discriminate against any particular form of technology—the majority concluded that this principle applies to valuation of a reproduction licence. The majority found that the Copyright Board’s decision was unreasonable in failing to consider the principle in setting the licence fees.

According to the majority, "technological neutrality" means considering the benefit obtained by the user in the operation of a particular technology. Where two users derive the same value from a protected work using different technologies, the licence costs to the two users should be the same. However, where one user using one technology derives a higher value from the work than another user who uses a different technology, the copyright holder is entitled to a higher royalty from the user who derives more value. In this case, it was found that the CBC derives greater value from the use of broadcast‑incidental copies in its digital technology than it did under its prior analog technology. This was a factor in favour of SODRAC receiving higher royalties.⁹

The majority ultimately allowed the appeal and remitted the matter to the Copyright Board to consider the principle of technological neutrality and engage in a balancing to determine the appropriate royalty.

Justices Abella and Karakatsanis wrote separate judgments. Justice Abella focused her reasons on copyright issues. While she agreed with the majority in allowing the appeal, she would have done so for very different reasons and with a different outcome. She would have found that copies that are incidental to broadcasting do not engage reproduction rights and that the CBC does not have to pay any royalty. Justice Abella also disagreed with some of the principles of valuation set out by the majority. Justice Karakatsanis, who agreed with Justice Abella on the issues of copyright law, focused her reasons on administrative law principles.

Analysis

This case represents a significant evolution of the principle of technological neutrality. The requirement to analyze the "value" derived by a user from its technology in setting copyright royalties is a new development that arguably shifts the balance in favour of copyright holders.

Furthermore, past decisions of the Supreme Court, including ESA v. SOCAN ¹⁰ and SOCAN v. CAIP,¹¹ focused on the central activity performed by the user of a protected work. In ESA v. SOCAN, users were permitted to download copies of gaming software containing copyrighted works via the Internet, and SOCAN argued that a broadcasting licence was required in addition to a reproduction licence. The Supreme Court held that the central activity was the creation of a durable copy by the user, and a reproduction licence was sufficient.¹²

Similarly, in SOCAN v. CAIP, the Supreme Court held that Internet service providers' central activity was the provision of content-neutral Internet services, so that they are not liable in copyright for making temporary incidental copies of protected works on their servers.¹³ In both cases, the Supreme Court considered the true nature of the activity rather than the technological method of accomplishing it.

The majority's decision in SODRAC appears to be a bit of a step backward in the cause of a truly technologically neutral approach to copyright law as it appears to mandate a consideration of the value derived from the use of different technologies, rather than focusing on the central activity performed by the user. This will impose further costs on the users of copyrighted works, to the benefit of creators. While the "balance" principle may keep these costs modest, that will ultimately be up to the Copyright Board, whose tariff quantification decisions (unlike its interpretations of the Copyright Act) are entitled to considerable deference.

 _________________________

¹Canadian Broadcasting Corporation v. SODRAC 2003 Inc., 2015 SCC 57 (SODRAC).

²Copyright Act, R.S.C., 1985, c. C-42, s. 3(1)(d).

³SODRAC at para. 49-51.

⁴SODRAC at paras. 168-170.

⁵SODRAC, para. 63.

⁶Copyright Act, R.S.C., 1985, c. C-42, s. 3(1)(d).

⁷SODRAC at para. 49.

⁸SODRAC at para. 52.

⁹SODRAC at para. 70-71.

¹⁰Entertainment Software Association v. Society of Composers, Authors and Music Publishers of Canada, 2012 SCC 34 (“ESA v. SOCAN”).

¹¹ Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, 2004 SCC 45 (“SOCAN v. CAIP”).

¹²ESA v. SOCAN at paras. 40-43.

¹³SOCAN v. CAIP at para. 115.