Tuesday, February 12, 2013

Ring In the Ringtones Litigation Redux – Over to the Federal Court

I have previously written about how Rogers et al are trying to get a refund of their “ringtone” payments made to SOCAN going back to 2003 in light of the SCC’s July 12, 2012 decision in ESA v. SOCAN, which held that the internet delivery of a permanent copy of a video game containing musical works is not a “communication” under s. 3(1)(f) of the Copyright Act.

The “communication” right was precisely the basis for the ringtone tariff in the first place. Interestingly, for reasons that were never apparent, the Objectors had conceded the point about “communication” – i.e. that there was a communication, though not to the public - at the inaugural Board hearing. Not surprisingly, given that concession, they lost. They then had a change of heart and a change of counsel and sought judicial review. Although their volte face was apparently not an issue per se in the Federal Court of Appeal, that Court nonetheless upheld the Board (CWTA v. SOCAN  2008 FCA 6) on this point and leave to appeal was refused by the SCC in 2008.  Of course, refusal of leave to appeal cannot be taken as an affirmation of the decision below, but rather like chicken soup, it normally doesn’t hurt.

We then move to the “pentalogy” decisions rendered by the SCC on July 12, 2012. In what may ultimately prove to be the costliest loss of all to the collectives on that memorable day, and at the able behest of Barry Sookman arguing for the ESA, the Court ruled in the ESA v. SOCAN case noted above that the process of delivering a permanent file containing music over the internet was not a communication. The Court also made other very important pronouncements about efficiency in the collective administration of copyright and about technological neutrality.

So, Rogers et al thereupon took steps both at the Copyright Board and in the Federal Court to get their ringtone money back.  Are the factual circumstances involving delivery of game files containing music and those involving ringtones containing music similar?

The FCA said in 2008 that there are two ways in which additional ringtones to those already on the phone can be obtained by customers:

[11]           Either method of acquiring a ringtone for a cellphone involves a transmission of the digital audio file from the wireless carrier to the customer’s cellphone, upon payment of a fee. Once the file is stored in the cellphone memory, the customer can access the file to play the ringtone or to use the ringtone as a signal for incoming calls. Neither of the transmission methods described permits the ringtone to be played or heard simultaneously with the transmission.

On the surface, it looks as if the SCC’s  pronouncement in 2012 would apply to the very activity that involves the delivery of ringtones. However, some interesting and difficult questions immediately arose concerning procedural issues. So, what is to become of a decision of the Federal Court of Appeal, for which leave to appeal was refused four years earlier?, though, as noted above, refusal of leave to appeal is not an affirmation.

When is a tariff “final”? Does the Board have the jurisdiction to vary or rescind a tariff going back ten years on the basis that the SCC has now come to a legal conclusion that is arguably 100% inconsistent with that of the Board and the FCA several years earlier, assuming that the factual underpinnings of the earlier decision are extremely similar to those considered by the SCC in the later decision? What about res judicata, stare decisis, and practical issues such as refunding money to those who ultimately paid in the end – namely consumers? Does the new legislation – namely the so-called “making available right” (which may or may not be a “new” right) make any difference?

These are many difficult questions. But there is a sufficient amount of money on the table –  supposedly about $15 million – to make the effort to recoup apparently worthwhile. And very capable counsel all the way around.

SOCAN had moved to stay the Federal Court action, pending the outcome of the Copyright Board proceeding. The Board has now ruled – at least in part. It will not vary or rescind theringtone tariffs for the period between 2003 to November 6, 2012. That, of course, is the day before the new legislation was proclaimed in force. The question as to what happens on and after November 7, 2012 is still open according to the Board.

Interestingly, the Board seems to doubt that the factual underpinning of the ringtones delivery process is sufficient similar to that of the video games process that the Board can make a ruling on whether SOCAN controls the applicable rights, if any.
[41] This is not the process to determine whether
the uses covered in the tariffs engage the rights
controlled by SOCAN. The extent to which the
underlying facts in ESA and Rogers are
sufficiently similar to what occurs when a ringtone
is transmitted is far from clear. ESA and Rogers
stand for the proposition that the Internet delivery
of a permanent copy does not involve the
communication right; however, neither decision
provides directives that would allow us to
determine what is a permanent copy and what is
not. Importantly, we have no factual base on
which to determine whether, today, six years after
hearing the matter, ringtones are permanent copies
within the meaning of ESA.

Still, the Board has no difficulty ruling that the new so-called “making available” right warrants what will undoubtedly be a major new hearing about Ringtones, should it go forward:
[44] On November 7, 2012, amendments dealingwith the so-called making available right ofCanadian authors, performers and makers cameinto force. To the extent that the 2006-2013 tariffis not otherwise enforceable, these amendmentsmay validate SOCAN’s royalty claimnotwithstanding ESA. For this reason, and thisreason alone, we will consider the application tovary the 2006-2013 tariff, but only from that date.

The Board’s decision not to vary or rescind its Ringtones tariff is complex, nuanced and important and must be read verbatim by any interested parties. There are many other aspects I haven’t even mentioned. It was notably issued very quickly by the Board’s usual measure for a decision of this complexity and importance.

Ironically, the Board discusses at some length why it is not the appropriate place to deal with some of these legal issues, which it feels would be best dealt with in the Courts. This may come as something of a surprise to those who have followed Board cases in the past where the Board has taken on very important issues of law that happen to overlap with a copyright issue. Examples that come to mind include the application of the Official Languages Act at Board proceeding, the meaning of a “tax” as opposed to a tariff, competition law, crown immunity, and the meaning of such ordinarily used words such as “ordinarily”.

Another concerns the great reluctance – indeed refusal – of the Board to go back in time to vary or rescind a tariff, in the absence of explicit statutory authority to do so, citing other tribunals with such authority. Such a practice admittedly might call into doubt the availability of collectives to distribute their revenues and the finality of Board tariffs. Nonetheless, the Board has never hesitated – even without any explicit statutory authority – to impose new tariffs retroactively for several years. These often come as great shock to those affected who may never have known about the proposed tariffs, or who may be shocked by their magnitude and had no obvious reason to budget for their retroactive imposition or to spend significant resources opposing them.
Another interesting irony of the Board’s refusal to grant this application to vary or rescind concerns its reasoning that that Rogers et al need not be concerned if they are right because royalties are only payable where a collective has an enforceable right with respect to works in its repertoire:
[19] The 2003-2005 tariff is identical in allrelevant respects. Royalties are payable only if aSOCAN licence is required. If the transmission ofa ringtone does not trigger a protected use of theSOCAN repertoire, no SOCAN licence isrequired; the applicants need not comply with thetariff. In other words, what the applicants seek toachieve through their application is already builtinto the tariff. The language of the tariff is clear.The reasons for which a licence is not required areunimportant; the only fact that matters is that alicence is not required.[20] Second, if, as the applicants maintain, thetariffs are void ab initio, nothing is achieved bythe Board declaring it to be so…
 This could be interpreted so as to be of some comfort to the universities whose interests are no longer being represented in the Board’s post-secondary tariff. As one reads the above pronouncement from the Board, a tariff that has no legal basis or that “does not trigger a protected use of the [collective’s] repertoire” can be safely ignored. Ariel Katz and I have voiced considerable concern that the Board will issue a “one copy of one work” tariff that will effectively be “mandatory” for post-secondary institutions, and that although such a tariff may be very dubious for any number of reasons, it could still cause significant headaches, copyright chill and potential expense and an uncertain outcome in defending it if it ever gets that far. The Board may have just provided another possible argument why tariffs without sufficient jurisdictional foundation can be ignored. 

In any event, since the Board has somewhat surprisingly declined to get involved in this matter and expressly suggested that the Courts are the best forum, it looks as if the Federal Court action will proceed, now with a counterclaim from SOCAN – presumably for unpaid ringtone royalties.  Here’s the docket.


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