Monday, May 25, 2015

Possible Fallout From the Copyright Board’s Access Copyright Provincial And Territorial Government Decision

Charles Levy - Wikimedia Commons

There once was a time when proposed inaugural Copyright Board tariffs were virtually bankable assets that would result in the financing of very expensive hearings that almost invariably paid off quickly and many times over – sometimes in the tens of millions or more.  Those essentially guaranteed good times and rich reward days for collectives and their counsel now appear to be over.

Here is my second cut of comments on the Copyright Board’s landmark decision regarding the Access Copyright (“AC”) proposed tariff for provinces and territories, which I reported on shortly after it was announced on May 22, 2015.  No doubt, I and many others will have much more to say another day. Michael Geist is already off to very good start on his blog.

To recapitulate, the Board awarded a tariff of 11.56 ¢ per FTE (full time equivalent) for the period 2005-2009 and 49.71 ¢ per FTE for 2010-2014. That’s less than 1% and about 2% respectively of what AC asked for.  According to the Board, the tariff will generate a total of only about $370,000 over its ten year period – which is likely only a small fraction of the costs involved in obtaining the tariff.

This is probably the longest decision that the Board has ever rendered. It took the Board more than 2.5 years from the hearing to render this decision, which is a very long time – but that’s another matter. To be fair, it is clearly complex. At 184 pages including the index, it is even longer than the monumentally important inaugural retransmission decision in 1990 that was the first and in some ways – at least economically – the most important Board decision ever. The Board then awarded a tariff worth more than $50 million a year 25 years ago – which was several times more than anyone including the proponents ever expected. Even that decision was shorter by six pages than the current decision – which results in the one of the lowest dollar value tariffs that the Board has ever awarded. Interestingly, the retransmission tariff decision was rendered less than five months from the time that the 57 day hearing was concluded in May of 1990 - how times have changed and not for better.

However, the current AC tariff decision may prove to be one of the Board’s most important – precisely because it is so much less than expected and precisely because it clearly is not worth even close to enough to cover the costs of obtaining it. Since it was aimed at all of the provinces and territories other than Quebec, ability to pay was definitely not an issue.

This decision is manifestly different than any other Board decision that precedes it. The writing style is dramatically different. The amount of detail and analytical rigour – both factually and legal detail – is very different. There appears to be more of an “inquisitorial” involvement that indicates that the Board will not simply rely on the adversarial process and will ask its own questions and do its own thinking. Note the post-hearing steps at the behest of the Board. Whatever the reasons, the changes are welcome.

The Board has gone from almost a dearth of legal reasoning and explicit factual underpinning and analysis to possibly the other extreme – which is clearly a preferable excess if one has to choose between the extremes. Whether such a detailed legal and factual analysis of the fair dealing issues (about 50 pages in this case) was really necessary is debatable. But it is definitely interesting and merits close analysis.

Overall, not only in hindsight but at the outset, it seems and seemed fairly obvious that copying done by governments of third party material will usually be for “research” purposes in the same way that copying done by law firms is usually for “research” purposes. And this must, as we all know now by heart, be given a “large and liberal interpretation”. Most of this copying will be for a legitimate fair dealing purpose and meet the further “factor” test. If the Board went overboard on this, it at least shows that the Board has now finally taken to heart the important rulings of the Supreme Court of Canada on fair dealing. Likewise, there’s a nine page discussion of what is “substantial” that covers some important case law including that of the Supreme Court of Canada.

It is definitely good news that the Board appears to have moved beyond comments such as referring to the Supreme Court’s CCH ruling as “the unavoidable starting point” on fair dealing and the Court’s reversal of the Board’s fair dealing analysis in the K-12 Alberta case as “findings of fact”.

Another welcome development is the Board’s recognition that Access Copyright’s repertoire is very limited, that the Board’s previous contortions in the K-12 case to recognize a wider and virtually unlimited repertoire were problematic, and that Access Copyright is not entitled to be paid for the use of works that are not clearly in its repertoire. The Board even commented negatively on AC’s repertoire “lookup” tool, noting that it is not limited to actual repertoire but is based upon AC’s conception of potential authorization.

The Board noted at para 119:
In short, Access considers in its repertoire almost all published works, without regard as to whether there is any relationship between the rights holder and Access.

And further:
[127] In the matter before us, payments have not been made by Access in relation to the copying events captured in the Volume Study, including to those with whom Access does not have an affiliate agreement. Since no payments have been made, no agency relationship could have arisen between the relevant owner of copyright and Access. The argument the Board accepted in K-12 for including works of non-affiliated copyright owners in the determination of the royalty rate is thus inapplicable in this matter.
[129] For the reasons that follow, we find that this is not sufficient for us to include copying events where the owner of copyright was not affiliated with Access as compensable for the purposes of determining a royalty rate in this Tariff.

The Board certainly seems to be resiling from its frankly untenable cheque-cashing implied agency theory in the K-12 case. See para 136:
Access can only send cheques, and thus be able to argue for the existence of an agency relationship, in relation to at most 0.005 per cent of copying from works of non-affiliated rights holders. Even if we were to accept the premise that the sending of a cheque by Access in relation to a copying event, and its subsequent cashing by the owner of copyright in the work copied, forms an agency relationship in relation to that particular copying event, it would remain that this would not happen for at least 99.995 per cent of the actual potentially compensable copying of works of non-affiliated rights holders that will occur during the Tariff period.

Clearly, Access Copyright and presumably other collectives must now be able to prove what their actual repertoire consists of and cannot expect to be compensated for repertoire for which there is no adequate chain of entitlement.

What will AC do now?

AC has is clearly “deeply concerned”. It says:
Access Copyright is deeply concerned with the Copyright Board of Canada’s May 22, 2015 decision in the Access Copyright Provincial and Territorial Governments Tariff, 2005-2009 and 2010-2014. The decision certifies a nominal rate for the copying of published works by provincial and territorial government employees and disregards the importance of licensing income to creators and publishers in the digital economy. 
We are currently reviewing the decision and assessing all appeal options.

Access Copyright will almost certainly seek judicial review (an “appeal” in laypersons’ terminology) of the current decision. This will be the expectation and, in one sense, AC would have little to lose. Judicial review is invariably much cheaper in terns if legal expenses than the initial case itself – since normally there is relatively little additional legal research that needs to be done and the record is what it is. It can’t be added to.

On the other hand, AC must assess the very real possibility of confirmation of the Board’s decision by the Federal Court of Appeal and/or the Supreme Court of Canada, if it gets that far –which would be an even far more serious loss indeed for it and which could affect other collectives in many obvious and less obvious ways.  At first glance, such review could be an uphill battle in this instance – because the Federal Court of Appeal and the Supreme Court of Canada are fairly deferential to the Copyright Board overall – and very deferential on questions of fact finding.  In this case, we have 184 pages that are, arguably, mostly about fact finding and number crunching. Even if the Board made some reviewable errors, which is far from obvious at first reading, the result may be only be a very minor adjustment overall, given the great care taken by the Board to determine what copies were compensable and why or why not.

Moreover, any judicial review may attract some interesting potential interventions – some of whom may be far from supportive of AC, as AC is aware from the Province of Alberta case in the Supreme Court of Canada where my intervener client, the Centre for Innovation Law and Policy of the Faculty of Law University of Toronto had a significant and perhaps determinative impact on the result.

Of course, there are other more positive options for AC – which I have suggested before when I debated Roanie Levy almost exactly a year ago at Brock University. (Go to the ~24:30 minute mark).  Maybe AC should recognize that it is consistently losing in the Courts and in the court of public opinion. Maybe it should drop its pending tariff cases at the Copyright Board. Maybe it should drop its litigation against York University, one of its best “customers”.  And, of course, it now has this defeat on its hands from the Copyright Board. And then maybe it can sit down with its community and figure out how to provide a marketable package of useful services based upon voluntary transactional licenses at reasonable rates based upon its actual repertoire.

Access Copyright is not growing. It is struggling to survive. It is spending an astonishing 29% of its revenues on operational expenses – far more than the norm for established copyright collectives. It has an infrastructure and resources that could still be put to good use. But its survival will require much more and something much different than desperately aggressive legal moves and a website makeover. I’m somehow sure that the AC Board of Directors will be giving this much and urgent thought in the weeks, days, and maybe even hours to come.

What will be the Immediate Collateral Effects?

Here are some questions that are inevitably going to be asked:

Province of Ontario:

Why did the Province of Ontario settle in 2011 for $7.50 per FTE (para 33) and agree to a digital deletion provision (para 154)? The Board’s decision refused to include a digital deletion provision and set a price that is only a small fraction of what Ontario agreed to pay. In 2011, according to Statistics Canada there were about 92,710 person employed by the “provincial and territorial government” in the Province of Ontario. This does not include teachers, health care workers, etc. The definition of an FTE employee caught by the tariff apparently varies province by province (see decision, page 134) and may or may not include health care workers, for example. It should not include educators, who are covered by another tariff.

If we take out the population of Quebec, which is not covered by the tariff, the remaining population of Canada is about 26 million. Of this, Ontario counts for more or less half at about 13 million. These figures are rounded off from Statistics Canada. So, it’s probably safe to assume that Ontario has about as many FTEs for AC purposes as the rest of Canada, excluding Quebec.

There about 120,000 FTEs in the rest of Canada, not including Quebec as counted by the Board. (See page 152 of decision). Therefore, that’s probably a safe figure to use for Ontario for FTE purposes, since Ontario’s population is about the same as that of the rest of Canada, not counting Quebec.

And recall that in the last Ontario election, Tim Hudak promised to fire 100,000 Ontario public servants out the 1.1 million he counted. See this article that points out some of the difficulties with determining these numbers. So, to be conservative, let’s assume on the presumably low side that there are 100,000 FTEs in Ontario covered by the license. So, at an overpayment of $7 per year for five years for 100,000 FTEs, we are talking about an unnecessary expenditure of at least $3,500,000 – which is far more than the total liability for the rest of Canada, excluding Quebec, for that period. And that’s probably a low estimate of the Ontario FTEs covered by the agreement. That bad deal expired on March 31, 2015.

True, hindsight is always 20/20. But, even at the time of the Ontario settlement, it was arguably predictable that this was far too generous a settlement in favour of Access Copyright. Ontario had a previously negotiated rate of $3.12 per FTE until 2010, which was determined in 2001 – three years before CCH (decision, para 31). There is lots of evidence on the record as seen in this decision of previously negotiated figures of even less than $3 per FTE in the past and that was BEFORE the CCH case. These figures were known. Obviously, the CCH case presented a strong reason to make the rate even lower after 2004. For some reason, Ontario renewed in 2010 at the same pre-CCH rate of $3.12 per FTE.

Thus, it looks like Ontario settled for an amount that is more than twice its own previously negotiated already arguably too high rate in light of CCH.

So, why would Ontario settle for more than twice the pre-CCH rate seven years AFTER the CCH case? It would be no answer that Quebec was paying more. The Board examined the Quebec situation in great detail and rejected the expensive COPIBEC license entered into by Quebec as a proxy or benchmark for the rest of Canada.

If the agreement that expired on March 31, 2015 has not been renewed, it should be significantly renegotiated. If it has been renewed at the $7.50 rate, at least foreseeably knowing that this decision was long overdue and therefore could come at any time, other questions should arise. In any event, a lot of questions generally might now be asked by Ontario taxpayers about why this costly settlement was entered into and how the Province deals with its copyright concerns.

The AC Post-Secondary Tariff

What will the Board do now about the Post-Secondary tariff, which is stuck between a rock and a hard place perhaps now even somewhere in the twilight zone? It is at once one of the most important files that Board has ever seen, and yet the associations representing universities and colleges (AUCC and ACCC respectively) have inexplicably withdrawn from the hearing, withdrawn their objections and left their members to the tender mercies of Access Copyright and the Board. While it’s obvious that there is more copying in universities and colleges per FTE than by employees of provincial governments, the Board can hardly ignore the methodology and findings in the current case, which raises very similar issues.

The York University Litigation

What will this mean to the York University litigation, which is based upon on the Post-secondary “interim tariff” that arguably should have been challenged at the time by the AUCC and/or  ACCC but wasn’t and now looks even worse in light of this decision? This litigation is based upon the “mandatory tariff” theory and I have expressed concerns about York’s response.

AC’s “Premium” and “Choice” Packages

What will this mean to Access Copyright’s new “Access Premium” and “Access Choice” offerings?  [Why does this sound more like a cable TV package? ;-)] Hard questions should be asked as to why universities should pay $18 per FTE for similar rights that Governments will now be paying less than $0.50 per FTE. That’s a 3,600% difference. While there is undoubtedly more copying per capita in universities than in Governments, it is hardly likely to be 3,600% more. And what effect will these “voluntary” license rates have on the tariffs being sought at the Copyright Board, which are much higher still – i.e. $35 for a university FTE and $25 for other post-secondary FTEs for 2014-1017.

The “Mandatory Tariff” Issue

Finally, what might be the impact on all of the above of any ruling by the Supreme Court of Canada with respect to the mandatory tariff issue,  about which I made submissions on March 16, 2015 on behalf of Prof. Ariel Katz and the Centre For Intellectual Property Policy as interveners? I won’t get into this now because that case is currently pending before the Supreme Court. We may have decision from the Court as early as September or October.

Other Aspects

I and others have recently commented on the future of the Board itself, which is a creature of statute and can be changed or eliminated by statute, and is susceptible to regulations that can be readily implemented by the Government pursuant to existing legislation. Personally, I believe and have often stated that the problems with the Board’s procedure can be fixed by regulations.

The Board is getting pressure from all sides to speed up its procedures and to lower the costs of participation. It has formed a working group to look at this. That has not gone too well, since certain incumbent interests are resistant to change. There is also a recent study by Prof. Jeremy de Beer commissioned by the Government, concerning which I’m working on a fairly detailed commentary.

In the past, some have been worried that the Board has become somewhat “captive” in the regulatory law sense to the collectives it is supposed to regulate. However, some collectives may now believe that the Board is leaning too far in favour of users. As I’ve pointed out, there are now two decisions in the last year that will apparently result in two major collectives failing to recoup their costs of obtaining a tariff – unless there is some miracle arising from judicial review. The other is the Re:Sound Tariff 8 “Pandora” tariff

Prior to last year, the one notable exception had been the ERCC. It has apparently folded and never paid off its debts or distributed anything to its royalty claimants. However, there were different considerations involved in the ERCC  (Educational Rights Collective of Canada) story, and ERCC was at best a very niche collective.

Are these two decisions, especially the AC one from May 22, 2015 a departure in significant ways from the past? Are they mere blips on the long term chart? Has the Board now begun to take a different view of the need for “balance” in the copyright collective realm? Has the Board taken on a more “inquisitorial” role that will allow it to address the public interest even in a fully contested case, and especially in important cases that may proceed by default, such as the Access Copyright Post-Secondary Tariff?

These are important questions as summer approaches. The next major event for Board watchers could be a puff of white smoke announcing the appointment of a new Chairperson. But it’s probably unwise to hold one’s breath, given that the post has now been vacant for over a year.


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