The Copyright Board of Canada is Reversed Again by the Federal Court of Appeal: the CAFDE Decision

I recently wrote about the reversal by the Federal Court of Appeal (“FCA”) of the CAFDE decision by the Copyright Board in which the Board was held to have erroneously reversed its own originally erroneous decision. I indicated that that this ruling was notable not only for its nature but that it comes at an interesting time in the Board’s history. To wit, the CAFDE decision:

• follows an important decision concerning Re:Sound from February of this year from the pen of now retired Justice John Evans, the “dean” of  and reigning author and authority on Canadian administrative law, wherein the Board was very resoundingly reversed on the grounds of procedural fairness
•  follows the Board’s decision from earlier this year dealing the Pandora issue, which predictably resulted in a judicial review application 
•  follows judicial review now underway of the Board’s Netflix decision
•  follows the recent decision of the Supreme Court of Canada to grant leave to appeal to CBC in the case involving the Board’s SODRAC ephemeral rights decision. That case is related to the current CAFDE case. It arose out of the same decision of November 2, 2012 that gave rise to the judicial review proceedings on behalf of CBC. That case will clearly involve the issue of technological neutrality. The apparently obvious question is whether the SCC affirms that it said what it meant and that it meant what it said about technological neutrality in its 2012 ESA decision and quite possibly something about the status of Bishop v. Stephens. And there could be other interesting questions arising from and resulting pronouncements from this case. Stay tuned…

All of this happening while the Board also has on its table a complex and expensive process that has grown to involve foreign expert opinions in order to determine whether or not the 2012 Canadian domestic copyright modernization legislation created a new “making available” right that could result in an additional tariff layer. This is being done in the context of the following matter: CSI - Online Music Services (2011-2013); SOCAN Tariff 22.A - Online Music Services (2011-2013); SODRAC Tariff 6 - Online Music Services, Music Videos (2010-2013). This is taking place as the result of an apparent lack of agreement on the implications of the 2012 Supreme Court of Canada decision in 2012 in the ESA case which dealt, inter alia, with how s. 3 of the Copyright Act is to be construed.

Interestingly, this also comes at a time when the Board has - by its own admission – committed yet another “error”, concerning the issue to which I had alluded in my September 24, 2014  posting about the July 18, 2014 Netflix decision, in which judicial review is already underway as noted above. I indicated on September 24, 2014 that:

Also unresolved and up in the air are issues around “downloads” and “making available right” – on the one hand, the Board says that SOCAN not entitled  but then the tariff refers to liability for downloads.

Shortly after my September 24, 2014 posting, the Board on October 8, 2014 published this notice which discloses the error and which coincidentally came just a few days before the CAFDE decision of the FCA. It is interesting now to see how the Board apparently is going about the process to “proceed with the correction” of its erroneous decision by the simple “issuance of an erratum by which any reference to downloads would be deleted.”

SOCAN Tariffs 22.D.1 (Audiovisual Webcasts) and 22.D.2 (Audiovisual User-Generated Content) for 2007-2013

October 8, 2014

NOTICE OF THE BOARD

On July 18, 2014, the Board issued its decision (the “Decision”) for the Statement of Royalties to Be Collected by SOCAN for the Communication to the Public by Telecommunication, in Canada, of Musical or Dramatico-Musical Works [SOCAN Tariffs 22.D.1 (Internet – Online Audiovisual Services) and 22.D.2 (Internet – User-Generated Content), 2007-2013] (the “Tariffs”). The Tariffs were published in the Supplement of the Canada Gazette, Part I, Vol. 148, No. 29, on Saturday, July 19, 2014.

The Decision was clear with respect to the Board’s intention related to the fact that SOCAN did not have the right to collect royalties for permanent and limited downloads. In fact, paragraph 14 of the Decision reads as follows:

The decision of the Supreme Court of Canada in ESA v. SOCAN meant that SOCAN no longer had the right to collect royalties for permanent downloads and limited downloads. This was reflected in the Board’s recent decision on online music services which had been structured the same way. As a result, neither agreement filed by SOCAN makes reference to downloads.

Although the Board’s intention was clear, the Board made an error in assuming that neither agreement made reference to downloads, and in certifying, as requested by the parties, Tariffs that reflected the terms and conditions of the agreements. Thus, the certified Tariffs do not express the intention of the Board and contain provisions related to downloads. In particular, the definitions and reporting requirements refer to downloads of audiovisual works, limited downloads and permanent downloads.

The Board’s preliminary view is that the Tariffs can be corrected in order to reflect the conclusions of the Board clearly conveyed in its Decision, for the following reasons:

·         First, the Board committed an error when it certified the Tariffs;

·         Second, the error committed by the Board is in expressing its intention with respect to the rights of SOCAN to collect royalties for downloads;

·         Third, the Board’s intention is manifest in paragraph 14 of its Decision;

·         Fourth, because of this error in expressing its manifest intention, the Board is not functus officio; and,

·         Fifth, the Board has the inherent authority to correct such error.

The Board would like to proceed with the correction of the Tariffs by the issuance of an erratum by which any reference to downloads would be deleted. For convenience, we have attached to this notice a marked version of the proposed, corrected Tariffs.

The Board would like to know whether any party objects to this proposal no later than Friday October 17, 2014. If no objection is received, the Board will proceed accordingly.

(highlight added)

The Board has published a proposed redlined version of the proposed deletions  that would be involved, which are quite extensive. Apparently, no parties objected prior to October 17, 2014 as to the Board’s proposed course of action. This remarkable announcement is in in the current issue of the Canada Gazette. Whether this unusual turn of events and the FCA’s CAFDE decision of October 20, 2014 will find their way into the Netflix judicial review proceedings underway or have any other repercussions remains to be seen. 

All of this is also happening as the Board continues to be caught between a rock and hard place on the Access Copyright Post-Secondary tariff, wherein the objectors have withdrawn from the hearing and Access Copyright is already setting the stage for judicial review and the Board has apparently been unable to decide whether to have an oral hearing or to proceed on paper. In the latter case, Access Copyright may have additional grounds for review, if it doesn’t like the outcome. The K-12 hearing process also seems to remain quite open and active, despite the original hearing having taken place in April and early May of this year. Both of these matters could result in rulings with potentially controversial implications concerning the “mandatory tariff” issue. I will have more to say about these proposed educational tariffs in due course….

And all of this is happening as the Board sits without a Chair. The term of past Chair, retired Judge William Vancise from Saskatchewan, expired on May 13, 2014. He could not have been reappointed beyond that date because that’s the way the statute works. His jurisdiction to remain seized of unfinished matters is spelled out as follows in the Copyright Act:

Concluding matters after membership expires

66.5 (1) A member of the Board whose term expires may conclude the matters that the member has begun to consider.

Marginal note: Decisions

(2) Matters before the Board shall be decided by a majority of the members of the Board and the presiding member shall have a second vote in the case of a tie.

R.S., 1985, c. 10 (4th Supp.), s. 12.

It may not be absolutely clear what is meant by “may conclude matters that the member has begun to consider”.  Whether this could or will become an issue in any of the several outstanding matters now before the Board remains to be seen. Clearly, it would not be appropriate to discuss this question with respect to any particular outstanding matters.

All of this is happening as there is much speculation and suspense about who the Government will appoint as a new Chair and when this will happen. I have taken the liberty months ago of suggesting that the appointment of the next Chair be made from the ranks of sitting or retired judges of the Federal Court or Federal Court of Appeal, many of whom already have considerable expertise not only in copyright law but in administrative law, and in some cases in constitutional, competition, communications and/or other often useful and relevant aspects of the law that can arise before the Board – and the Federal Court of Appeal.  All of the sitting federal courts judges reside in the National Capital region. Some of the retired judges still do. This fact alone would have the additional advantage of saving the government a lot of money.  All of the judicial chairs of the Board since it was established in 1989 have been from the courts of the provinces. Perhaps the time has come for the Government to make an appointment from the ranks of the sitting or retired judges of the Federal Courts.

I have suggested earlier this year that the Board is at a cross-roads. Michael Geist has been far more blunt, saying that “The Board may keep a steady stream of lawyers and economists busy, but it is time to acknowledge that it is broken”. There is increasing concern that that:

• The Board’s hearing process regularly takes years longer than what we see in the Courts and other comparable tribunals, even in some far more complex cases that may involve patent, competition or communications law. It often takes four years or more for a proposed tariff just to get to the hearing stage at the Board and another two years or more for the Board to render a decision. One of the results of these long time lines can be tariffs with a sometimes very long retroactive reach that can come as a shock to many users who are without effective representation at the Board and may have been unaware of the looming liability. 
•  While the great cost of Board hearings was once considered a safe investment with a virtually guaranteed lucrative return by most collectives and even by bank lenders, this is probably no longer the case. The very high cost of Board proceedings has always been a problem for users, especially those who cannot pass the costs on to their customers. However, these high costs and delays and the uncertainty of the cost/beneficial outcome are now a problem for collectives too. 
•  The Board’s decisions are, it seems, increasingly and sometimes dramatically being reversed by the Federal Court of Appeal and the Supreme Court of Canada (“SCC”). The SCC decided five cases from the Board in 2012. While the Board was upheld in three of those cases, it was dramatically reversed in two of them. As noted above, the SCC has just taken on another important case involving technological neutrality and possibly other issues. 
•  While there are calls for greater resources for the Board, it is not clear that this would solve any problems. As I have earlier written, with about 16 full time equivalent employees (FTEs), plus up to five full or part time Board members themselves, this Board is already by far the largest organization of its kind anywhere in the world. It will have a net cost of operations for 2014 in excess of $3.5 million. It is an interesting fact that the Copyright Board already has almost 10% of the budget of the Supreme Court of Canada. The Copyright Board’s net cost of operations for 2014 will be more than $3.5 million. That of the Supreme Court for 2013 was less than $41 million. The Copyright Board typically renders only about two or three (more or less) substantive decisions a year that typically require several years to reach the hearing stage. The hearings are rarely longer than a week or two. There is typically a 1.5 to 2 year (or even more) delay after the hearing before a decision is rendered, and the decisions are often then reversed after judicial review. By contrast, the Supreme Court of Canada in 2013 received 529 applications for leave to appeal, heard 75 appeals and rendered judgment in 78 cases. The average time between a hearing and the rendering of a judgment was 6.2 months. More statistics on the SCC can be found here.

If the Government is sufficiently concerned about these issues, progress can be made in the short and medium term in two tangible and achievable ways, as I have earlier suggested:

• By appointment of a Chair who can hit the ground running at least in terms of both copyright and administrative law, and quite possibly some other useful field such as communications or competition law. As I have suggested, such a person might be found from the ranks of the sitting or retired judges of the Federal Court or the Federal Court of Appeal    
• Through regulations that the Government can implement pursuant to the existing legislation, either at the behest of the Board or the Departments or both, in order to provide more certainty and efficiency. Examples of such clearly articulated and time-tested regimes can be found close at hand, for example with respect to the Competition Tribunal, the Canadian Industrial Relations Board, the Canadian International Trade Tribunal, the CRTC and other comparable federal tribunals.

While there is much to be said for the informality and normally high degree of collegiality among counsel and in the way the Board works with counsel, the fact remains that there is wide-spread concern that, at the end of the day, things take much too long and costs are much too high for all concerned, including the collectives themselves. With respect to certain issues such as:

•  the order of proceedings (the apparently unique process of interrogatories first and “pleadings” only  at the very end);
•  departure from the normal rules of evidence, especially regarding expert witnesses; and,
•  timing benchmarks,

it would seem that the Board has arguably departed from conventional practices and procedures in the federal administrative law context, where cases are often far more complex and financially significant than Copyright Board cases. For example, the Competition Tribunal recently dealt with the massive and complex Visa and MasterCard credit card case in well under three years from beginning to end.

It seems that the Government is indeed aware of the possibility and need of Board reform through regulations, which can originate either from the Departments or the Board itself or both. Hope springs eternal that we might actually see something sooner rather than later. See the Government Response: Fifth Report of the Standing Committee on Canadian Heritage, "Review of the Canadian Music Industry" (Presented to the House on October 10, 2014).  This report from the Minister of Canadian Heritage indicates that:

On the time it takes for the Copyright Board to issue decisions, the Copyright Act provides the Board with authority to set its internal procedures. I understand that the Board is currently reviewing these procedures in an effort to streamline the royalty-setting process. Changes to that end could be considered as early as fall 2014. Beyond this, the next mandated Parliamentary review of the Copyright Act will be an opportune moment to consider important copyright issues, such as the broader framework in which the Copyright Board operates.

(highlight added)

This may refer to the process announced by the Board about two years ago to embark upon an internal review to be led by the Board’s former General Counsel that was to involve a select few invited outside counsel with experience before the Board, The mandate from the Board’s Vice-Chair was:

….. I expect that the committee will wish to focus generally on (a) proposing possible changes to procedures and processes that may lead to Board proceedings being more efficient and, possibly, less costly, (b) considering improvements to other aspects of Board processes and operations that may enhance the quality of the Board’s services to collectives, copyright users and the public in general, and (c) identifying other issues where improvements may be required and which may be addressed as time and resources allow. As part of this exercice [sic], the committee might also wish to identify more specific recommendations, on a small number of issues, and that can be addressed relatively easily, in the hope of delivering significant improvements fairly rapidly.

(highlight added)

There was notably no mention by the Board of potential suggestions for regulations to be proposed either by the Board or the Government or both.  There was clearly a hint about the possible need for more resources. There was clearly a suggestion that that there are only a “small number of issues” that need be addressed in this process. At the present time, the closest thing that the Board has to rules or regulations is its “Model Directive on Procedure”, which provides little or no guidance to solving the problems as currently perceived.

While it is possible that this non-transparent process may soon provide a report to the Board, the process for dealing with that report in turn is unknown, much less its substance. It would appear unlikely that any dramatic results, much less regulations, will come from this process. All of this may be contrasted with the much more open process of implementing regulations that the Government of Canada through the its departments normally employs.

There is no question that, even though things seem to move very slowly at times at the Board, it has over the last 25 years or so produced a huge volume of tariffs, important decisions and countless procedural rulings that have had an enormous impact on the copyright collective management sector that now generates about $500 million in revenues per annum in Canada. The challenge now is to lower the overall transaction costs of the Board process so that the creators actually reap the benefits they deserve from the copyright system through collective management and users are able to enjoy their rights under the legislation without paying for unnecessary tariffs and with a reasonable degree of certainty at a reasonable cost and in a timely and minimally retroactive manner when tariffs are appropriate. 

 HPK