Tuesday, March 15, 2016

The Copyright Board’s K-12 Tariff: Good, Bad, Retroactive, Mandatory? A Seven Year Itch?

White Dress of Marilyn Monroe from The Seven Year Itch https://en.wikipedia.org/wiki/White_dress_of_Marilyn_Monroe

The Copyright Board’s K-12 decision for 2010-2015 was released on February 19, 2016. The tariff was filed on March 31, 2009. The hearing took place in May, 2014. Now, almost two years after the hearing and almost seven years after filing, we finally have a decision. Naturally, it is retroactive back to 2010. It is 172 pages long, which puts it in the top three or so of the Board’s longest decisions. Here is the actual Tariff.

The bottom line is this, according to the Board:

The rates certified by the Board are $2.46 per student per year for the period 2010-2012, and $2.41 per student per year for the period 2013-2015.

The amounts of royalties that are likely to be generated by the tariff the Board is certifying are $9.5 million per year for the period 2010 to 2012 and $9.3 million per year for 2013-2015.

Access’ initial proposed rates were $15 per student for the 2010-2012 period and $9.50 per student for the 2013-2015 period. Access later reduced its request to $13.69 per student for 2010- 2012 and maintained its request at $9.50 per student for 2013-2015. The Objectors to the Tariff, the ministries of education and the Ontario school boards, proposed a rate of $0.49 per student for 2010-2012 and $0.46 per student for 2013-2015

AC’s reaction, posted February 23, 2016 includes the following statement:

While the amounts may appear reasonable on the surface, we are disappointed by the Board’s decision, which establishes a troubling framework for determining the fairness of copying behaviour in schools and dismisses the value of much of the content that is used. 

AC is clearly trying to position the rate of $2.46 as “reasonable” when many would regard it as quite the contrary, in part for the reasons suggested below. AC can probably live happily with the rate, which would provide it with almost $10 million per year, if the school boards actually regard it as mandatory and actually pay it (but see below!). But of course AC then predictably goes on to predict gloom and doom in any event:

The Board estimated, for example, that schools covered under the tariff copied approximately 195-million pages from books in Access Copyright’s repertoire each year. In its tariff valuation, however, the board excluded 87% of that copying, or approximately 179-million pages.

That means creators and publishers of books are going uncompensated for copying of an amount equivalent to approximately 897,300 books, annually.  

We are concerned this decision will further diminish the incentives to publish at the same time as it creates a compelling incentive for K-12 decision-makers to rely, even more, on copying as an alternative to purchasing content.    

The CMEC consortium representing the K-12 school boards outside Quebec said:

The announced tariff rates are lower than the per-student rates requested by Access Copyright of $15.00 for the years 2010–12 and $9.50 for the years 2013–15. However, the consortium had sought a lower rate.

Indeed, CMEC stops well short of claiming this as  a victory – perhaps because the rate is only about half of the arguably much too high rate that it claimed as a victory in 2009 and is about 500% higher than the rate recently certified for provincial employees and what CMEC had proposed. As I reported on the Provincial Governments tariff last year: 

Eleven years ago, Access Copyright filed a tariff seeking $15 for each full time equivalent employee from provincial and territorial governments. 

Its ship has now come home.  But spoiler alert: the ending was not a happy one for Access Copyright. The ship was not full of riches as expected. Instead, the Copyright Board has awarded only 11.56¢ - that's indeed ¢ and not $ and not a typo - per employee per year or 0.0077, i.e. less than 1%, of what Access Copyright asked for. That is for the period of 2005-2009. The rate goes up to 49.71¢ per employee for 2010-2014. But that is in turn only about 2% of the $24 per employee that Access Copyright asked for.

This arguably much too high rate may be due at least in part to CMEC’s reliance on the same problematic “Volume Study” it used in the last 2005-2009 hearing that was already seriously flawed at the time by their own admission because, as I suggested in 2009, the Educators had agreed at an early stage of those proceedings to a survey methodology that resulted in evidence that by their later admission “needs to be collected differently” in light of the 2004  CCH v. LSUC case, even though it was obvious at the outset in 2005 that the landmark CCH decision could and should affect what happens in Canadian schools. Perhaps a new Volume Study that asked all the right questions might have been a good investment. However, it clearly would have been expensive and intrusive once again. Perhaps the Board should force – or regulations should require – that tariff applicants bear the entire cost of such studies.  But that is a topic for another day.

In any case, there is a much more immediate and cogent, though not unrelated, reason why the rate is so high, as explained below, concerning so-called “consumables”.

BTW, that 1998 $2.10 rate adjusted to inflation according to the Bank of Canada would now be just under $2.94. Intuitively, based upon the Supreme Court of Canada jurisprudence and the 2012 legislation, the K-12 tariff should be MUCH lower than that, not just $0.48 cents lower. Indeed, recall that that the $2.10 rate negotiated in 1998 predated the landmark CCH fair dealing ruling, which the school boards have been slow to assimilate and we now have the 2012 pentalogy decisions AND  the addition of “education” to s. 29 of the Copyright Act. It will also be recalled that the 2005-2009 tariff was set at $5.16, which was later reduced to $4.81 following the Province of Alberta decision from the SCC in 2012. That amount of $5.16 was arguably much too high, as I suggested at the time.

Both sides express concerns with the Board’s reasoning. Overall, there are some good legal findings in the current K-12 decision, from the standpoint of public policy. CMEC is to be commended for bringing about a better understanding of fair dealing in the context of education and the Board is to be commended for adopting what were presumably many of CMEC’s arguments.

The Board seems to have finally refused to include works of non-affiliated rights owners – which AC had tried to include by sending out cheques to sometimes bewildered recipients whose names somehow appeared in AC’s database and received a small cheque out of the blue (para 158).

There is growing scepticism by the Board re inclusion of repertoire from foreign RROs (para 165).

The Board refused to go along with inclusion of sheet music in the tariff, since the volume in evidence was too low to be reliable – and suggests a transactional tariff, but nobody proposed one (paras 186, 187).

On substantiality, Board, at long last, properly notes that the old maxim that “what is worth copying is prima facie worth protecting” is “now discarded”. (para 217)

There is no indemnity provision in this tariff. (para 185) The indemnity provision was always highly problematic from a legal standpoint – as I have questioned for many years. That said, it was comforting to users, if they did not ask too many inconvenient questions, such as whether AC was providing an unlicensed insurance scheme.

Notably, the Board accepted key CMEC’s submissions on fairness with respect to copying from books. For example:

[288] For longer works, such as books, guided by the Supreme Court’s decisions in CCH, Alberta, and Bell, we use the following approximation: where the amount of a work copied was less than or equal to 5 per cent of the work, we conclude that the amount copied tends to make the dealing fair; where the amount copied was more than 5 per cent but no more than 10 per cent of the work, we conclude that the amount copied did not affect the fairness of the dealing; where the amount copied was greater than 10 per cent of the work, we conclude that the amount copied tends to make the dealing unfair.
[425] With respect to goal, we find that 100 per cent of dealings for books tend to fairness. This is because there are two underlying goals—private study and education—that cover all the copying that takes place in the educational context.
[426] With respect to amount of the dealing factor, and as explained above in Part XIII.F above, we apply the following rule. If fewer than or equal to 5 per cent of the pages in the work were copied, the dealing tends to fairness. If more than 10 per cent of the pages in the work were copied, the dealing tends to unfairness. The intermediate interval has a neutral tendency.

That can be seen as a vindication of CMEC’s fair dealing guidelines, which some had thought that the Board would not treat with great sympathy. Whether the Courts will agree may be another matter, which may get addressed in judicial review of this decision and perhaps much sooner in the AC v. York U case, which I’ll have more to say about another day.

However, on a less positive note, the Board rejected CMEC’s transactional license proposal as insufficiently supported by the record and that it would entail ongoing “monitoring and compliance” so as not be “an invitation to copyright violation” (para 368)

So, Why All the Right Reasoning and Resulting Surprisingly High Rate?

The Board did some interrelated things that could render its decision susceptible to judicial review (aka “appeal”) – with a result that is not easy to predict that this stage.

First, it apparently was not happy with the approach of either side on fair dealing and decided to embark upon a methodology of its own without giving the parties an opportunity to comment. It also decided, in contrast to the previous tariff, to included “consumables”.

In the Board’s words:

[348] We generally proceed with our calculations in the same manner as the parties, by determining the number of copies that were made for a permitted purpose, and, of those, how many were fair. However, in order to use the aggregate information in evidence, we must make the assumption that the characteristics of copying (such as the goal of the dealing, the amount of the dealing, or nature of the work) are independent of one another. For example, whether a copy is made for one purpose or another, the amount of the work copied is not dependant on the purpose. This assumption is necessary, since the data that was adduced by the parties from the Volume Study does not let us correlate such characteristics with one another with any confidence.

[349] Given that the information in relation to consumables, which were not compensable under the K-12 (2013) decision, is also drawn from the 2006 Volume Study, and was also provided to the Board in aggregate form, we use the same method for approximating the amount of fair dealing in relation to consumables as well.

[350] The full methodology and calculations are discussed in Part XVI.E and in Appendix B. The methodology is of our own design, inspired however by submissions of the parties, particularly those of the Objectors. The calculations use data that is part of the evidence. Our assumptions and inferences are also based on the evidence. Because we are of the opinion that the parties did not adequately address fair dealing, we had no choice but to fashion a methodology of our own.

[351] The use of our own methodology raises the issue of whether or not we should submit it to the parties for comments. We decline to do so, for three reasons. First, allowing the parties to comment on the methodology issue would introduce several months of needless delay. We believe that the record is complete enough as it is. Second, the methodology is fundamentally based on the six-factor legal framework from CCH. This is a well-known framework, on which the parties have already commented extensively. Finally, the methodology uses data found in the evidence. The later has been extensively examined and cross-examined by the parties.
(highlight added)

The decision to make CMEC members now pay for the consumables that were excluded in 2009 appears to be based upon AC’s inclusion this time of the item in its proposed tariff.  CMEC did not object per se, but appears to have argued mainly about how much of the copying of consumables should be worth. The data for the consumables calculation came from the less than satisfactory 2005 Volume Study. It is not evident in the decision exactly what was considered in the Volume Study to be a “consumable”. 

The decision to include consumables and the value ultimately placed upon copying of consumables clearly is why the tariff appears to be so much higher than expected.  As noted, this is in contrast to the previous decision. This time, the Board defines “consumables” as “works that contain a statement to the effect that copying is not permitted”. (para. 33) This is in marked contrast to the Board’s 2009 decision wherein it stated that:

[12] A consumable is a document that is intended
for a single use and that may not be reproduced.
In contrast, a reproducible is a document sold
with the authorization to reproduce it for in-class

[22] Access acknowledges that some copies
cannot or need not be subject to the tariff. The
first are copies of documents of which
reproduction is not allowed (and therefore,
illegal): essentially, consumables. The second are
those already authorized by the rights holder or
by the Act: these are copies of reproducibles and
copies authorized pursuant to exceptions under
the Act, including the fair dealing exception. For
the remainder, Access assumes that practically
all copies of published documents given to
students will result in remuneration.

The Board seems to have dropped the “intended for a single use” component of its 2009 definition of "consumable". 

The “consumables” development is potentially very troubling. It will be trivially easy for publishers and everyone else to include such an explicit statement in every document, whether it be a workbook, a web page or a long history book. Indeed the copyright pages of many, if not most, books already contain such as statement. I’m looking right now at the copyright page to my handy Carswell compilation of Canadian IP statutes, which contains the remarkably incorrect statement that “No part of this publication may be reproduced, stored in a retrieval system, or transmitted … without the prior written consent of the publisher (Carswell)” And that’s a book of statutes, for goodness sake! (Sorry Carswell – you are my publisher but you shouldn’t include this over-the-top boiler plate!) Even Sam Trosow and Laura Murray’s excellent book contains such a statement, which I am sure Sam and Laura never intended to be the case. This kind of boiler plate may frighten some timid librarians and even timid copyright lawyers. The Copyright Board should not take it at face value, and have given no compelling reasons to take it at any value.

Such statements cannot and do not replace the law of the land as stated in the Copyright Act and by the Supreme Court of Canada. As the Chief Justice said in CCH, in 2004:
49    As an integral part of the scheme of copyright law, the s. 29  fair dealing exception is always available.
70    The availability of a licence is not relevant to deciding whether a dealing has been fair.  As discussed, fair dealing is an integral part of the scheme of copyright law in Canada.  Any act falling within the fair dealing exception will not infringe copyright.  If a copyright owner were allowed to license people to use its work and then point to a person’s decision not to obtain a licence as proof that his or her dealings were not fair, this would extend the scope of the owner’s monopoly over the use of his or her work in a manner that would not be consistent with the Copyright’s balance between owner’s rights and user’s interests.

Leaving aside the fair dealing analysis, it is not clear what exactly formed the basis of the “consumables” calculation at the end of the day in terms of what types of works were included, or the criteria for classifying them as consumables. It all appears to trace back to the flawed 2005 Volume Study – but if that is so, why should the Board have relied on such evidence?

However, if one follows (or tries to follow) the Board’s reasons and calculations, it becomes apparent and is summarized in Table 35 that 79% of the FTE rate of $2.46 is attributable to “consumables”. Without the new and unexplained inclusion of "consumables", this tariff would be worth only less than $0.46 per FTE, in other words just about exactly what CMEC had suggested at the outset.

See also paras. 308, 309, 349, 350, 445, 446 – 448, 477, 487, 499.  

Why Did the Board Not Consult the Parties About its “Methodology of Our Own”?

The reference to a potential delay of “several months” (para 351) if the Board were to have afforded the parties an opportunity to comment on the new methodology is nothing if not ironic. This tariff is retroactive by six years. The Board took almost two years after the hearing to render this decision.  That is an extraordinary, inexplicable and frankly very problematic result compared to other Canadian courts and tribunals. Another few weeks or months would hardly seem to make a difference after seven years. In any event, why it would take the parties “several months” to respond is not clear. Courts routinely ask parties to respond to important questions on the Court’s mind that may not have been considered by the parties on the spot, or overnight.  The real question is why it took the Board so long to come to “the opinion that the parties did not adequately address fair dealing” at the hearing, or indeed in their statements of case.

Indeed, if the Board’s decision - to unilaterally go off on its own on a fundamental issue long after the hearing was over and not consult the parties - results in judicial review, whether or not successful, another year at least will be added to the retroactive effect of this tariff. It could even be a much longer, if the Federal Court of Appeal remits the matter back to the Board – and far longer still if the matter ends up in the Supreme Court of Canada.

Moreover, an old issue is suddenly back and potentially in the foreground. This is the very fundamental jurisdictional question of whether the Board can even render such retroactive rulings, concerning which see more below. Spoiler alert: the “retroactivity” issue is now clearly on the Supreme Court of Canada’s radar screen. This could be a game changer.

Note on the Delay and Retroactivity

The new Chair of the Board was not involved in this proceeding, which has been almost seven years in the making, including almost two years since the hearing took place. The former Chair, Justice Vancise, was seized of this case and has had it under reserve, along with his colleagues, for almost two years since his retirement from the Board. Chairman Vancise’s term as Chair ended on May 13, 2014which came just after the hearing in this case concluded. The statute allows a retired member to conclude matters that the member “has begun to consider”. Unlike the Supreme Court of Canada, for example, there is no stated time limit on how long this may take.

The retroactivity issue is now clearly on the radar screen of the Supreme Court of Canada as a result of my submissions in the recent CBC v. SODRAC case. See paragraphs 109 – 111 of the decision. In footnote 2 of the decision, Justice Rothstein noted that:

During the hearing before this Court, counsel for the interveners the Centre for Intellectual Property Policy and Ariel Katz briefly raised concerns regarding the Board’s power to issue retroactively binding decisions in general. That issue was not squarely before this Court in this case, and I do not purport to decide broader questions concerning the legitimacy of or limits on the Board’s power to issue retroactive decisions here. 

That is not a ruling. But it is a clear signal that the Supreme Court has this issue on its radar screen. The retroactivity issue was raised in my clients’ factum.  The Court’s interest was very clear at the hearing. Watch at just before the 163 point in the webcast of the SCC hearing where Justice Karakatsanis raised this issue, which extended our intervener oral submission into overtime.

This is not the first time that the Court has been concerned about retroactive copyright tariffs. The Court pronounced on this rather clearly back in 1954 in the case of Maple Leaf Broadcasting v. Composers, Authors and Publishers Association of Canada Ltd., [1954] S.C.R. 624 (which was in our factum) in which the  majority stated that, in the context of concerns about only a few weeks or months of uncertainty and retroactivity:

I think the better view is I that it is an implied duty of the Board to proceed with all possible expedition and that the statements if certified later than January 1 relate back upon certification to the commencement of the year.
(emphasis added)

Surely “all possible expedition” doesn’t mean almost seven years. It will be interesting to see whether, if CMEC seeks judicial review, the retroactivity issue will be raised. There appears to be at least $55 million at stake for the previous six years.

I shall have more to say about the retroactivity issue another day. For the moment, suffice to say that the Seven Year Itch phenomenon may be setting in.

Note on the “Mandatory Tariff” Theory

Above all, the elephant in the room for all concerned in the educational sector in particular – and apparently not addressed here by CMEC or the Board – is the overwhelmingly important question of whether the Board’s tariff is “mandatory” in any sense at the end of the day. If it is not, and if the school boards  and other major sources of revenue for AC find a better and cheaper way of copyright compliance and stop paying AC as if it were mandatory, AC will have a major existential problem.

According to the Supreme Court of Canada in the SCC’s recent CBC v. SODRAC decision, as I understand the reasoning and it was indeed yours truly who successfully argued this very issue, it is not mandatory as far as the school boards are concerned. Naturally, I reiterate, as I do from time to time and is always stated on my “masthead”, that my views on this, or any other topic on this blog, are not to be taken by anyone as a legal opinion or advice for any purpose.  Readers should consult their own counsel – and in any event read for themselves the Supreme Court’s copyright decisions. The Court’s copyright decisions are very clear and comprehensible, even to non-lawyers. One senses that the Court is very aware of the public policy implications of these decisions and wants the public to read the reasoning directly and that this is why these decisions are written in a particularly eloquent and direct manner and perhaps even more so than the Court’s generally very lucid judgments.

If, as is absolutely clear in the CBC v. SODRAC decision, a Board tariff is NOT mandatory as concerns a party that becomes involved, as a result of failure to reach a royalty agreement, in the so-called (but misnamed) “arbitration” procedure under s. 70.2, why would it then be “mandatory” for countless school boards who were forced to appear before the Board because this was under the Board’s “general regime” set forth in Sections 70.1 to 70.191 of the Act? If anything, the case that a general regime tariff is not mandatory seems even more obvious than under the so-called “arbitration” regime of s. 70.2.

Even if the CMEC consortium didn’t raise the issue of whether the tariff could and should be “mandatory”, that doesn’t mean that this tariff is mandatory. The Supreme Court’s ruling in CBC v. SODRAC predated this Board decision by about three months. While the Board has asked numerous parties to comment on the technological neutrality aspects of this decision, it has not done so with respect to the “mandatory tariff” aspect. When the Supreme Court rules, its decisions are effective immediately, unless the Court says otherwise (notably in Charter cases where time may be needed to amend or adjust). It is somewhat surprising that neither the Board nor the objectors took any steps to assess the impact of the “mandatory tariff” ruling on this case. Likewise, as I have noted, there was not discussion of this issue in the Post-Secondary hearing that concluded on January 22, 2016.

The issue of “mandatory tariffs” and how it was dealt with in a conference at Osgoode Hall Law School on Thursday, February 25, 2016 where Ariel Katz and I explained why, in our view, tariffs such as this are NOT mandatory. This should be available soon on the web – I’ll let folks know when. Here are the Power Points.  Anyway, what Ariel and I and David Lametti, who was part of the team with Ariel and me and is now an M.P. and Parliamentary Secretary to the Minister of International Trade, argued and believe doesn’t really matter anymore. What matters is what the Supreme Court of Canada said. And what the SCC said, in Justice Rothstein's last and legacy copyright decision before he retired, is very clear. On this issue, there was no dissent.

It will be interesting to see if school boards regard this tariff as mandatory on a going-forward and/or retroactive basis. AC’s much vaunted and commissioned PWC study suggests that the school board’s payments have indeed stopped as of January 1, 2013. See page 23.

Overall Conclusion on the Board’s Decision

My preliminary take on this very complex decision includes the following:

The Board is finally getting around to correcting some of its prior misunderstandings on issues such as repertoire, implied agency, insubstantial copying, and some aspects of fair dealing.

The Board seems to be taking a higher and more balanced road than in the past. It even rejected AC’s claim that a decline in royalties would result in a decline of writers’ output:

[332] Under the hypothetical scenario where creators would cease to receive royalties from Access, 60 per cent of respondents indicated that this would have no impact on the number of works they create, and 23 per cent indicated that they would reduce the number of works they create. Since the majority would continue to produce works even when no royalties are paid, this suggests that Access royalties do not have a strong effect on creator future output.

That said, mostly because of the lengthy but not readily understandable reasons and conclusions concerning “consumables”, the rate is about five times higher than one might have expected and what CMEC had asked for. 

Indeed, governments and taxpayers may notice that this rate is about five times higher than the Provincial Governments rate for 2010-2014 and about 20 times higher than the Governments rate for 2005-2009.

It is exceeding difficult to get findings of fact, especially those involving detailed calculations, overturned on judicial review, unless they are in turn based upon an underlying misunderstanding of the legal principles – as was the case in the SCC Province of Alberta decision.

That said, both sides here have much to be concerned about and judicial review seems quite possible, which could add at least a year and possibly much more to the uncertainty and potential retroactivity depending on the outcome.  Because there is no “cross-appeal” process in judicial review, it would not be surprising if both sides file at the same time – which will be on or before March 21, 2016 by my calculation.

In any case, if CMEC members conclude that whatever tariff the Board has certified or may certify in the future after a rehearing may be safely ignored if there are better and less expensive ways to be copyright compliant because such a tariff is not “mandatory”, either on a going forward or retroactive basis, then many if not all of these issues will become effectively moot for practical purposes. CMEC might still file a judicial review application to keep its options open. It might be content with a tariff in the $0.46 per FTE range.

This particular decision has left both sides apparently unsatisfied. That does not necessarily mean that it was decided with the Wisdom of Solomon. It exemplifies both the positive and problematic aspects of the Copyright Board process. What happens now is uncertain. We may have more insight by the end of the day on Monday, March 21, 2016 if one or both sides seek judicial review.

Broader Implications?

In general terms, the SCC’s ruling on “mandatory tariffs”, the SCC’s recognition of the retroactivity issue and the possibility of recovering money paid in the past under tariffs that become questionable in the light of subsequent jurisprudence (see Rogers slow motion struggle to recover ringtones money paid to SOCAN) add to the uncertainty facing the Board and its stakeholders. All of this may keep a small cadre of lawyers very busy, but it seems that the actual stakeholders on all sides are starting to ask some very fundamental questions and are becoming impatient or simply withdrawing from the process. 

Meanwhile, correction continues to come from the Federal Court of Appeal, for example this decisions just before Christmas on procedural fairness from Justice Nadon in the Netflix case on which I commented.

Unless the Government gets decisive and decides to devise and implement regulations governing the Board, its procedures and its stakeholders, one can expect that these issues will loom large, if not dominate, the 2017 review process.


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