Wednesday, September 24, 2014

Another Netflix Canadian Close Encounter of the Regulatory Kind


Netflix, as is well known, is having an interesting time with Canadian federal regulation these days. At the CRTC, it is disputing that tribunal’s jurisdiction to regulate Netflix in any way, including the demanding of information. Netflix is also currently engaged in another less visible proceeding at another federal tribunal, namely the Copyright Board that, although less dramatic, is still very interesting and potentially important. On July 18, 2014, The Board released its decision in STATEMENT OF ROYALTIES TO BE COLLECTED FOR THE PERFORMANCE IN PUBLIC OR THE COMMUNICATION TO THE PUBLIC BY TELECOMMUNICATION, IN CANADA, OF MUSICAL WORKS. 

This Board tariff file goes back to 2006 when Netflix was heavily engaged in DVD rental and smartphones were something new and exciting.  In the meantime we have had several potentially relevant SCC cases on technological neutrality and fair dealing and new legislation from 2012 that arguably should have had a major impact on this case.

The whole technological landscape changed when Netflix launched streaming internet based video into Canada in September, 2010. Netflix was technically only an intervenor in the Board case. It is upset that the Board imposed a tariff on the one-month “free” trial membership that Netflix offers.  

Here is how Netflix is affected by the Board’s tariff:
“For a service that offers subscriptions to end-users: 1.7 per cent for the years 2007-2010 and 1.9 per cent for the years 2011-2013 of the amounts paid by subscribers. In the case of free trials, a minimum monthly fee of 6.8¢ for the years 2007- 2010 and 7.5¢ for the years 2011-2013 per free trial subscriber shall apply;”

Fair dealing for Netflix is clearly an issue. $0.068 per customer per month for free trials adds up over the years with as many millions of customers as Netflix has. 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.

Netflix started a judicial review (in layperson’s terms, an “appeal”) proceeding on August 14, 2014. This will take about a year or more to resolve in the normal course of events. Here is the Notice of Application.  For reasons that are not immediately apparent, Netflix has named the Attorney General of Canada and the Copyright Board itself as respondents.

Quite apart from the legal issues, which are interesting enough to say the least, the whole process raises questions about timing and the role of the Copyright Board where our copyright oversight regulatory system moves inexplicably slowly but affects – inevitably retroactively – enormous and innovative industries that move at the speed of the internet. We have a tariff application here that started in 2006 at the dawning of the smartphone age and well before the age of tablets that was decided by the Board eight years later and long after internet on-demand movies had become widely available. With the almost inevitable judicial review we now see from Copyright Board decisions, this battle is still far from over.

This is another instance in which regulations concerning the procedures and timelines for Copyright Board hearings might have been helpful.


Tuesday, September 09, 2014

Update on Fair Dealing in Canada – A Future Full of “FUDD”?

In the last decade, users of copyrighted works in Canada have enjoyed major victories in the Supreme Court of Canada. In three cases, CCH v. LSUC, SOCAN v. Bell, and Province of Alberta v. Access Copyright the Court repeatedly recognized fair dealing as a “users’ right” that must be given a “large and liberal” interpretation. Moreover, the centrality of users’ rights has been further entrenched in two additional cases, ESA v. SOCAN, and the CRTC Reference. In addition to the judgments from the Court, Parliament added explicit reference to education, parody, and satire in s. 29 of the Copyright Act.  However, there have been persistent, extensive and expensive attempts in proceedings at the Copyright Board and the Courts to deny, erode and even implode these victories, financed by revenues derived from those very users who thought they had achieved victories in these battles and maybe even the overall war.

For those who unambiguously favour a large and liberal view of fair dealing, who wish to preserve their users’ rights as confirmed by the Supreme Court of Canada and Parliament, and who may be concerned that defeat on the fair dealing front could yet be snatched from the jaws of victory, the following recent developments may be of interest.

K-12 Hearing at the Copyright Board

The Board issued a notice on June 6, 2014 asking certain legal questions of the parties, which are Access Copyright  and the Council of Ministers of Education Canada. The Board itself has raised some very interesting questions concerning fair dealing, Access Copyright’s repertoire, CMEC’s proposed rates, and its publication Copyright Matters!, the lead author of which, as it happens, is CMEC’s lead counsel at the Board hearing, Ms. Wanda Noel.

The responses were filed on August 8, 2014. Here is the response of Access Copyright and here is that of CMEC.  Reply arguments were filed on August 29, 2014 by Access Copyright and by CMEC.

The oral hearing will resume for one day on Friday, September 12, 2014 at 9:00 9:30AM at the Copyright Board and may be worth attending for those in Ottawa. This should be an intense and intensely interesting day indeed.

The Access Copyright Post-Secondary Hearing at the Copyright Board

This is the tariff proceeding from which AUCC and ACCC withdrew, and indeed withdrew their objections, after having spent millions of dollars, providing an enormous amount of interrogatory information to Access Copyright and leaving the fate of their members to be decided by default. I have explained why, as a result of this unprecedented failure (for whatever reasons) of the adversarial process,  the Board is now  in a very difficult position. There has been no publicly visible sign of life on this file for several months. On January 17, 2014 the Board indicated that “After having received and analysed all answers from Access, and replies from Mr. Maguire, the Board will either decide when to reschedule the hearing or proceed on paper.”  No doubt, fair dealing could loom large in the Board’s decision, if it gets that far. Prof. Katz has arguably left the Board enough basis, in principle, for the Board to decline to proceed with this matter or to reject the tariff out of hand.

In any event, the Board has presumably received all the documentation and answers it was looking for by April 22, 2014.  Still, there has been no indication of how the Board plans to proceed. The file appears, to the public at least, to be in a state of limbo. The term of the Board’s previous Chairman, William Vancise, expired on May 13, 2014. It is not clear whether he can, or would even wish to, continue to be involved in this file. The position of Chairman of the Copyright Board remains vacant. It is not known when that vacancy will be filled. The next Chair will clearly face a major challenge concerning how to deal with this very problematic file.

Access Copyright v. York University

There has been some movement on this litigation. The Court has issued a “bifurcation order”, which divides the case into two parts, which – at the risk of oversimplification - are as follows.

Phase I will deal with the issue surrounding the allegedly illegal copying by the five named individuals, “whether Access Copyright is entitled to any relief in connection with such activities and the issues raised by York in its counterclaim, including whether the Interim Tariff is voluntary or mandatory. That could still leave unresolved the question about whether a final certified tariff can be mandatory, something that York has, for whatever reason, apparently chosen not to confront. Phase I will also deal with York’s Fair Dealing Guidelines. The Case Management Judge’s order  notes that “While the parties differ as to how Fair Dealing Guidelines are to be applied, it appears that a factual matrix must be established before their application can be ascertained.”

The Phase I trial hearing will take place over the course of 15 days in May of 2016.  A 15 day hearing is a very long time for a copyright case, especially one that is supposedly NOT an infringement proceeding and, in this instance, only the first phase. The remaining Phase II issues will be dealt with thereafter “if necessary, depending on the outcome of Phase I.”  Access Copyright will, however, in the meantime have a limited right to pursue discovery on Phase II issues that could impact on York’s defence based on its Fair Dealing Guidelines. See para. 2 of the bifurcation order. This bifurcation order still leaves some significant potential uncertainty.

The Role of the CMEC and AUCC Fair Dealing Guidelines

Without commenting in any detail on the above developments, it is important to note that the CMEC fair dealing guidelines for K-12 that will be considered by the Copyright Board are virtually the same as those that will be considered by the Federal Court in May, 2016 in Phase I of the York University case. See below for links. These common guidelines cover a vast range of activity ranging from kindergarten to post-doctoral (and beyond) private study, research and education. Moreover, these essentially identical documents will be considered in two very different fora, namely the Copyright Board and the Federal Court. So, it will be interesting to see how the Copyright Board and the Federal Court react to these guidelines.

Timing and Procedure

It is impossible to predict the timing of the Board’s decisions – since the K-12 hearing is still far from over and there will still be some “technical questions” up in the air following the resumption of the hearing in September. However, the Copyright Board often reserves and deliberates on its decisions for at least 18 months and sometimes even two years or more following the conclusion of a hearing, and whatever it decides may be judicially reviewed by the Federal Court of Appeal, a process that usually adds at least another year or more. Moreover, it should not be forgotten that the Supreme Court of Canada decided five cases from the Copyright Board in 2012 and has now taken on yet another.

The Post-secondary file is even harder to predict. Although it is unopposed, it presents a potentially existential challenge to the Board. Ironically, the very fact that such an important matter has, for unexplained and perhaps inexplicable reasons, turned into a default proceeding will ensure that whatever the Board does will be looked at very closely by all concerned on the sidelines and well beyond, even if there may not be much that they can do about it. Because the AUCC and ACCC withdrew their objections and withdrew from the proceedings, it is unclear as to who, if anyone, on the “objector” side would have the legal status – not to mention both the will and the resources – to seek judicial review in the event that the outcome might call for it.  The fallout of all of this – and there will be fallout – will be very interesting, regardless of the outcome.

Whatever the Board decides in its K-12 decision or Post-secondary decisions, even if such decisions are released before the Phase I Federal Court hearing, will in principle have no effect on that court case, since Board decisions are not binding judicial precedents unless and until they are upheld by the Federal Court of Appeal in judicial review proceedings. In this instance, the cases clearly involve different parties and different facts in different fora. While it is theoretically possible that the Board could – unusually – render a decision that deals with fair dealing guidelines and/or the concept of a “mandatory tariff” on a much shorter than usual timeline that could in turn be considered by the Federal Court of Appeal and result in a judicial precedent in time for the York University trial in May of 2016, that is highly unlikely given the normal timelines of the Board and the Federal Court of Appeal.

The Mandatory Tariff Issue

One thing seems very clear. There is no quick answer in store on the issue of whether an Access Copyright Board tariff – interim or final – can be “mandatory” in the sense of liability for the whole tariff amount for the whole period of the tariff if one infringing copy is made of one work that is in Access Copyright’s repertoire for which an institution can be held responsible. Just to remind readers, that could mean a liability of millions of dollars for one infringing copy of one work for one large institution. Extravagant as this theory is, it is the position being taken by Access Copyright, and so far, at least, has been encouraged by various pronouncements and positions of the Copyright Board itself. CMEC has, apparently, decided not to raise this issue in the K-12 hearing, and has instead suggested a fairly nominal tariff of $0.49 per FTE per year.  Interestingly, the Board has asked CMEC why it did not ask for “zero”. And it should be recalled that even a nominal tariff will likely have far from nominal administrative and reporting requirements.

So far, despite Ariel Katz’ noble but unsuccessful attempt to get the Board to promptly resolve the question by direct reference to the Federal Court of Appeal (to which Access Copyright to its credit essentially agreed other than regarding details on the wording that surely could been resolved), there is no shortcut in sight. It might have been possible at one point for York to get a quick ruling based upon an attack on the pleadings insofar as they were premised on a “mandatory tariff” theory. However, it is now presumably too late for this.  It will be interesting to see whether York will, at some point, seek a preliminary determination on a point of law, or move for summary judgment in the Federal Court. Such moves can sometimes be used to dramatically and quickly shorten, if not conclude, some otherwise lengthy and expensive litigation. While their success cannot be guaranteed, the Supreme Court of Canada has recently, with respect to summary judgment, strongly encouraged recourse to this procedure in appropriate cases. See here and here in the Hryniak decisions. There is no indication on the record to date that York is currently planning anything along these lines, and the terms and the discussion by Prothonotary Aalto, the Case Management Judge, suggest that it is not. In fact, a  story dated September 5, 2014 in Canadian Lawyer suggests that the parties now “are in the discovery phase of the proceeding…” So, it looks for now as if York sees this as going on at least until May, 2016.

More FUDD?

So it looks like the attempts by Access Copyright to instill fear, uncertainty, doubt and denial (“FUDD”) about fair dealing will go on for a very long time – with the possibility of huge retroactive liability in the future for some institutions, if CMEC and/or York manage to lose their cases and if the “mandatory tariff” notion is somehow given judicial sanction. Naturally, such a result could come from the Post-Secondary tariff as well, from which AUCC and ACCC have withdrawn, leaving the fate of their members to be determined in default proceedings

From Access Copyright’s standpoint, all of this will be funded by the dwindling but still significant revenues it receives mostly from educators and governments.  This activity will also be funded, indirectly, by creator and publisher members of Access Copyright whose cheques are getting smaller as the overall revenues decline and the legal bills continue to be generated. But in the meantime, there will be lots of FUDD for lots of authors, educators, scholars, students and those in the library and other communities that serve them. And Access Copyright will continue to withhold royalties from its creator members at the unusually very high rate of 35%  to fund this strategy. That is about twice the normal rate for collectives. All of this will be very rewarding for the lawyers involved in these protracted proceedings – but not so much for actual creators and certainly not for users. See here, for a major example of general discontent about Access Copyright’s approach even from within the writer community and eloquently voiced in 2012 by Brian Brett, a former Chair of the Writers' Union of Canada.

All of this could be resolved, of course, if Access Copyright were to withdraw its aggressive proposed tariffs at the Copyright Board and discontinue its litigation against York. Although I don’t and can’t speak for any of them about this, I am hopeful and even confident that the school boards and universities would be sympathetic to paying a reasonable amount for actual rights to actual repertoire in a manner that would actually enhance access and reduce costs of copyright compliance. Contrary to the disinformation that has been widely disseminated, nobody in these communities expects that all uses of all material should be completely “free”. All of the litigation and the Board proceedings to date have been and will be extremely expensive – with the outcomes very uncertain.

There was a productive and very civilized debate in an academic context between me and Roanie Levy at Brock a few weeks ago about many of these issues. However, we are now about to re-enter a much more Hobbesian world wherein the litigators are far more likely to benefit overall than writers, educators, students or taxpayers. This long war of attrition will likely have a lot of collateral damage.

Deus Ex Machina?

It may be recalled that CMEC made an attempt to intervene in the York University litigation, which unsurprisingly was denied at this stage. Even if this attempt had succeeded, it would have done nothing to shorten the proceedings. It will be interesting to see if there will be other third party “Deus ex machina” attempts to get involved in a different manner that could, perhaps, dramatically shorten this litigation or otherwise resolve the issue of a “mandatory tariff”.

Here are some further key documents for those who are interested in these developments:  


Tuesday, September 02, 2014

Update - SCC Grants Leave to Appeal re Copyright Board SODRAC Ephemeral Rights Decision on September 4, 2014

PS - here's the FCA judgment that is being appealed to the SCC, penned by Pelletier, J.A.:

Here’s the Copyright Board decision from November 2, 2012 that in turn that was the basis for the FCA decision under appeal.

UPDATE Sept 4 2014 - the Court  has granted leave to appeal  in this case. 

We shall learn on Thursday, September 4, 2014 at 9:45 AM whether the Supreme Court of Canada will hear the following appeal. The following summary is that of the Court.



Canadian Broadcasting Corporation / Société Radio-Canada v. SODRAC 2003 Inc., et al.
(Federal Court) (Civil) (By Leave)


Intellectual property - Judicial review, Copyright, Licences.


Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch) for information purposes only.
Intellectual property law — Judicial review — Copyright — Licenses — Licensing societies — Royalties — Ephemeral copies — Application by broadcaster for review of licenses issued by Copyright Board allowed in part — Collective society imposing royalties on producers of content and broadcasters — Licences allow collective society to collect royalties for copies incidental to use of new broadcast technologies — Whether the Court of Appeal erred in refusing to apply the principle of technological neutrality in its interpretation and application of the Copyright Act, R.S.C. 1985, c. C-42 — Whether the Court of Appeal erred by adopting a non-technologically neutral interpretation of the Copyright Act that fails to achieve the correct balance between the rights of copyright holders and users, as well as the public interest in fostering innovation — Whether the Court of Appeal erred by departing from this Court’s jurisprudence on the grounds that they provide insufficient guidance.
SODRAC applied to certify a proposed tariff which related to the royalties on copies of cinematographic works for retail, rental and theatrical use. It also applied to set the terms and conditions of a licence for the reproduction of musical works in its repertoire by the CBC. The Board consolidated the examination of the CBC and another arbitration matter.
The application was allowed. The tariff was certified, and licences were issued to CBC and the other broadcaster. An interim order extended the 2008-12 licence pending a final determination of SODRAC’s s. 70.2 application concerning licences covering 2012-16.
CBC sought judicial review to set aside several terms in a 2008-12 licence (Federal Court of Appeal File No. A-516-12). It also sought judicial review of the extension of the 2008-12 licence (Federal Court of Appeal File No. A-63-13).