Canada: Re: Sound Flexes Its Musical Muscles

Last Updated: May 28 2014
Article by Michelle Chai

As noted in a previous blog post on Re:Sound tariffs, Re:Sound1 Tariff No. 6.B (Use of Recorded Music to Accompany Physical Activities), sets the royalties to be paid for the performance in public or communication to the public of published sound recordings in any indoor or outdoor venue for the purposes of fitness, training, skating, dance instruction or any other physical activity.  When this Tariff was certified in July 2012 by the Copyright Board of Canada, it was retroactive for the years 2008 to 2012.

However, in February 2014 the Federal Court of Appeal ("FCA") set aside the Tariff as it concerned fitness classes, dance instruction, and other physical activities, and left untouched the tariffs related to skating (see below for discussion of the FCA decision). 

This does not mean the Tariff is now dead.  In March 2014, Re:Sound informed the Copyright Board it was working on the terms of a new Tariff 6.B that would replace the one certified by the Copyright Board in 2012.  Re:Sound also asked the Copyright Board to issue an interim decision allowing the tariff to continue until the new wording could be certified.

The Copyright Board granted Re:Sound's application and reinstated Tariff No. 6.B (backdated to January 1, 2008) until the Copyright Board issues a further interim or final decision on this Tariff.

What does this mean for you?

Tariff No. 6.B will continue to "B" for the time being.  If you operate an indoor/outdoor skating venue where sound recordings are played then Re:Sound will continue to be owed royalties under this Tariff, regardless of whether or not an admission fee is charged.  If you operate a venue which holds fitness or dance classes or other kinds of physical activities, and sound recordings are played, Re:Sound can collect royalties as the Tariff has been reinstated on an interim basis.  In the event the Copyright Board renders a final decision nullifying Tariff No. 6.B, Re:Sound may be required to refund royalties collected to date. 

It is likely that once the new wording of the tariff is agreed upon, the Copyright Board will certify new Re:Sound Tariff No. 6.B and tariffs will continue to be due to Re:Sound for the use of recorded music accompanying physical activities.

Federal Court of Appeal February 2014 Decision

On the basis that the tariffs approved in July 2012 for Tariff No. 6.B were too low, Re:Sound sought to set aside Tariff 6.B and get the rates re-determined by the Copyright Board.2  The application was opposed by the Fitness Industry Council of Canada, the industry's trade association, and GoodLife Fitness Centers Inc., described by the FCA as a "major player in the fitness industry".

If approved as proposed in 2012, Tariff 6.B would have imposed royalty payments of approximately $86 million annually on the Canadian fitness industry which, according to Re:Sound, has an annual revenue of $2 billion.  The Fitness Industry Council and GoodLife submitted royalties should only be in the range of $3 million.

Re:Sound alleged the Copyright Board had committed three errors in setting the royalty rates:

    (i)        It breached the duty of fairness by basing Tariff 6.B on a ground that was not considered during the hearing;

   (ii)        It erred in law when it interpreted the Copyright Act as providing that royalties should be based, not on the number of all recordings used in fitness classes, but on the percentage of those recordings for which the performers or makers had authorized Re:Sound to collect royalties on their behalf; and

  (iii)        It set the royalty at an unreasonably low level.

The Copyright Board had agreed with Re:Sound that SOCAN Tariff 19 (royalties to be paid to composers and lyrics of recorded music used to accompany dance, aerobics, bodybuilding and other similar activities) was not an appropriate benchmark for Re:Sound Tariff 6.B.  The Copyright Board noted SOCAN Tariff 19 was so problematic, that rather than attempting to enforce the certified rates, SOCAN collects nearly 1/3 of its Tariff 19 royalties under confidential licensing agreements with individual users.

In coming to its decision, the Copyright Board had acknowledged that flat fee royalties are generally an "unsatisfactory" reflection of the value of music to users "because they do not take account of the number of participants in a targeted activity or the amount of music used".  In calculating the fee, the Copyright Board determined that 53% of the musical recordings played at fitness centers were eligible recordings, and then adjusted this percentage down to 36.6% to reflect the fact that Re:Sound's repertoire consisted of only a portion of the eligible recordings, and imposed an annual flat fee of $105.74 to be paid by each venue.

The FCA applied a standard of reasonableness in considering the question of whether the Copyright Board had erred in considering information from SOCAN about its licensing agreements under Tariff 19.  That information was not provided to Re:Sound (although it had known the Copyright Board has asked for the information from SOCAN), and Re:Sound argued it had not had the opportunity to respond.  At the intial hearing, there had been no discussion about using the amounts paid under the SOCAN agreements for setting the Re:Sound royalties.  The FCA held Re:Sound had been deprived of a fair hearing because it had not had the opportunity to make submissions on the appropriateness of the Copyright Board's methodology in calculating the Re:Sound tariff. 

The FCA noted it would be odd if a collective society were able to collect royalties for all eligible recordings but distribute them only to the performers and makers of recordings in its repertoire: "What happens to the funds owing to those that Re:Sound never identifies is unclear".  The FCA agreed with the Copyright Board's interpretation of the Copyright Act – performers and makers will not receive equitable remuneration until they "opt in" and sign up with a collective society, which is a "relatively easy step to take".

Ultimately the Federal Court of Appeal set aside the Tariff as it concerned fitness classes, dance instruction, and other physical activities, and the only part of the Tariff left untouched were the rates related to skating.  Re:Sound's application for judicial review was granted and the matter was remitted to the Copyright Board for redetermination.

Footnotes

1 Re:Sound obtains fair compensation for performers and makers (i.e. artists and record companies) for their performance rights through Re:Sound licenses and the collection of royalties, while SOCAN represents the performance rights of composers, authors, and music publishers – SOCAN covers the compositions while Re:Sound covers the recordings.

2 2014 FCA 48.

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