Canada: Technological Neutrality, Technological Neutrality, Technological Neutrality: CBC V SODRAQ

The Supreme Court released a landmark judgment yesterday in the closely watched case, Canadian Broadcasting Corp. v. SODRAC 2003 Inc., 2015 SCC 57. The 7-2 judgment of the Court was delivered by Rothstein J (with whom McLachlin C.J., Cromwell, Moldaver, Wagner, Gascon and Côté JJ agreed).

The judgment established the following principles.

Broadcast‑incidental copying engages the reproduction right. While balance between user and right‑holder interests and technological neutrality are important principles under Canadian copyright law, they are interpretive principles which do not trump, and cannot change, the express terms of the Act. The Court rejected the argument advanced by the CBC and CIPPIC, which intervened in the appeal, that the reproduction right should be interpreted in light of the principle of technological neutrality to apply only where the right would be consistent with the purposes of the Copyright Act.

The ordinary meaning of the text of the Copyright Act indicates that broadcast-incidental copying activities do engage the reproduction right. As this Court held in Bishop, the text of s. 3(1)(d) covers such activity by its terms. Making broadcast-incidental copies is the making of a "sound recording, cinematograph film or other contrivance by means of which the work may be mechanically reproduced or performed": s. 3(1)(d). Though this Court's understanding of the purpose of copyright has evolved since the observation in Bishop that its "sole purpose" is protecting author interests, no recourse to this observation is required to read s. 3(1)(d) as being engaged by broadcast-incidental copying activities: para. 1. The plain language of the statute itself establishes this much...

Abella J. is of the opinion that, in reaching this conclusion, these reasons employ a "literal approach to the interpretation of s. 3(1)(d), reading the words of the provision without the benefit of the purpose and context of the Act to ascertain its true meaning": para. 170.  It is rather my colleague who uses the principle of technological neutrality to displace the words Parliament has used.  With respect, through her use of the principle of technological neutrality, she does not give sufficient attention to the text and context and the legislative history that explain the carve out from the reproduction right provided by ss. 30.8 and 30.9 and the residual broad scope of s. 3(1)(d)...

Although made in the process of broadcasting, these broadcast-incidental copies nevertheless trigger the reproduction right. They are not exempted by ss. 30.8 and 30.9. There is nothing in the text, context or legislative history of these provisions (or s. 3(1)) that supports the view that the broadcasting process obviates the fact that broadcast-incidental copies are reproductions under the Copyright Act. Arguments based on purpose in the form of technological neutrality and balance are advanced to come to the opposite conclusion, but purposive construction is a tool of statutory interpretation to assist in understanding the meaning of the text. It is not a stand-alone basis for the Court to develop its own theory of what it considers appropriate policy. Accordingly, the Board was correct in proceeding on the basis that broadcast incidental copies engage the reproduction right under s. 3(1)(d) of the Copyright Act.

A licence to make broadcast‑incidental copies cannot be implied from synchronization licences issued by SODRAC. Further, nothing in the principle of technological neutrality prevents the recognition of such licensing. In fact, economic considerations justify the practice of dividing synchronization and broadcast‑incidental copy licences.

I cannot agree. To the extent CBC's implied-licence argument turns on the language of SODRAC's actual synchronization licences, these licences do not give any indication that they ought to be read to include the right to make broadcast-incidental copies...

Nor am I persuaded that licences to make broadcast-incidental copies should be implied under synchronization licences more generally, lest the synchronization licences be rendered sterile...

CBC's attempts to cast the implied-licence issue in terms of the principle of technological neutrality are unavailing. CBC has failed to highlight exactly how SODRAC's desired practice of disaggregating synchronization and broadcast-incidental licensing would offend the principle as it has been understood by this Court. Separation of licences into synchronization and broadcast-incidental arrangements does not, on its own, impose a "gratuitous cost" based on formal technological distinctions, as was the concern in ESA.

Nor does technological neutrality stand for the proposition, as CBC urges, that the Copyright Act prohibits the creation of "additional layers of royalties at the behest of collective societies" such that disaggregating synchronization and broadcast-incidental copying is legally impermissible: A.F., at para. 105. This argument reads ESA too broadly. The difference between synchronization copies and broadcast-incidental copies is tied to the fundamentally distinct activities of production and broadcasting. They are different functions. This difference is not based on particular technological details; it would exist regardless of the technologies used either to produce or to broadcast. Thus, a decision recognizing production and broadcasting as distinct activities, and thus as the valid subject of disaggregated licences, does not offend the principle that "an additional layer of protections and fees" not be imposed based solely on technological change: ESA, at para. 9.

In fixing royalties under Section 70.2 of the Act, the Board must apply the principles of technological neutrality and balance. In fixing royalties in this context, the Board should consider a number of factors including the respective contributions of the user and the copyright‑protected works to the value enjoyed by the user; the risks taken by the user; the extent of the investment made by the user in the new technology, and the nature of the copyright protected work's use in the new technology. The Court held that the Board had failed to take these principles into account and that such failure, which was subject to review on the standard of reasonableness, should be set aside and remitted back to the Board for consideration.

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...

In the regulatory context, the principle of technological neutrality applies to valuation of a reproduction licence, just as it does in determining whether an activity implicates copyright at all. The Board operates pursuant to the Copyright Act, and in its regulatory role of fixing royalties under s. 70.2, it may not simply set aside the principles that guide its interpretation of the Act once it has begun its valuation analysis. While the Board's valuation analysis will vary according to the facts of each case, it is unreasonable for the Board to ignore the principle of technological neutrality in that analysis in cases where it is implicated...

Because rights holders have the exclusive right to reproduce their works under s. 3(1)(d), they are entitled to be justly compensated for the use of that right. One element of just compensation is an appropriate share of the benefit that the user obtains by using reproductions of their copyright protected work in the operation of the user's technology. That just compensation must be valued, however, in accordance with the principle of technological neutrality...

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...

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. Relevant factors will include, but are not limited to, the risks taken by the user, the extent of the investment the user made in the new technology, and the nature of the copyright protected work's use in the new technology. The Board must assess the respective contributions of, on the one hand, the risks taken by the user and the investment made by the user, and on the other hand, the reproductions of the copyright protected works, to the value enjoyed by the user. In this case, where the financial risks of investing in and implementing new technology were undertaken by the user and the use of reproductions of copyright protected works was incidental, the balance principle would imply relatively low licence fees to the copyright holder...

Pursuant to Section 70.4, after the terms of a license are fixed under Section 70.2, the user retains the ability to accept or decline those terms. This decision was premised on the wording of Section 70.4 which was interpreted to give the user an election whether to accept or reject the license. Section 68.2(1) of the Act which addresses the effect of fixing tariffs certified by the Board in various other contexts and which gives collectives the right to collect royalties under an approved tariff was not considered by the Court.

SODRAC counters that the Board has the power to issue licences in either blanket or transactional form, and should have this power in all proceedings under s. 70.2. To hold otherwise, it argues, would be "to make the Board's remedial jurisdiction under section 70.2 dependent upon the consent of a user, [and] would be at odds with its mandate to resolve disputes"...

I do not read the Copyright Act to necessitate that decisions made pursuant to the Board's licence-setting proceedings under s. 70.2 have a binding effect against users. Section 70.2 itself provides that where a collective organization and a user cannot agree on the terms of a licence, either party may apply to the Board to "fix the royalties and their related terms and conditions": Copyright Act, s. 70.2(1). This grant of power speaks of the Board's authority to set down in writing a set of terms that, in its opinion, represent a fair deal to licence the use of the works at issue. It says nothing, however, about whether these terms are to be binding against the user...

Section 70.4 of the Act... makes it clear that a user whose copying activities were the subject of a s. 70.2 proceeding may avail itself of the terms and conditions established by the Board as a way to gain authorization to engage in the activity contemplated in the Board proceeding. The language of s. 70.4 does not, of its own force, bind the user to the terms and conditions of the licence...

SODRAC's framing of the issue is not entirely wrong: the Board does have the power under s. 70.2 to "fix the royalties and their related terms and conditions". That is, the Board may decide upon a fair royalty to be paid should the user decide to engage in the activity at issue under the terms of a licence. However, this power does not contain within it the power to force these terms on a user who, having reviewed the terms, decided that engaging in licensed copying is not the way to proceed. Of course, should the user then engage in unauthorized copying regardless, it will remain liable for infringement. But it will not be liable as a licensee unless it affirmatively assumes the benefits and burdens of the licence.

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