Monday, June 01, 2015

Do We Finally Have a Canadian Re:Sound Copyright “Fitness Tariff” After 8 Years? “Are We There Yet”?

The Copyright Board on March 27, 2015 issued a ruling on Re:Sound’s fitness tariff 6.B that may possibly bring some closure, at least to the parties directly involved, to a file that is now about eight [8] years old. However, unlike the more recent decision re Access Copyright’s Provincial and Territorial tariff concerning which I’ve just written, this fitness tariff case has really no clear conclusion, since the public, incredibly, after 8 years, still doesn’t even know how much it is worth overall. And the Board has suggested that we may need to start over again at the next round of hearings due to the “unreliable” expert evidence proffered at the first round.

This was a typical Board hearing in many ways, and it shows many aspects of why these things can take so long and cost so much. Here’s the timeline:

  • Tariff is filed June 2, 2007
  • Board Hearing April 27 to May 11, 2010
  • Board Decision July 6, 2012
  • Judicial Review Application Filed August 7, 2012
  • Hearing by Federal Court of  Appeal (“FCA”) November 19, 2013 
  •  Decision by Federal Court of Appeal February 24, 2014
  • Parties File Settlement March 21, 2014 
  •  On April 17, 2014 the Board ruled that:
Those parts of Re:Sound Tariff No. 6.B (Use of Recorded Music to Accompany Physical Activities) that were set aside on February 24, 2014 in Re:Sound v Fitness Industry Council of Canada et al. (2014 FCA 48) are reinstated on an interim basis effective as of January 1, 2008 and until the Board issues a further interim decision or a final decision.
  • Board approves settlement agreement with minor adjustment March 27, 2015

That is almost 8 years from the beginning to the inconclusive end. True, this one did involve an unusually great amount of money – or at least Re:Sound tried to make that be the case. Re:Sound was seeking roughly $86 million per year” from  fitness facility operators, etc. The objectors proposed a formula that would have yielded about $3 million a year. That’s a big discrepancy.  Revenues from fitness clubs are about $2 billion a year. Lots of zeros sometimes seem to have a way of making things very complicated and protracted at the Copyright Board. Although this was an “inaugural” (first instance) tariff for Re:Sound, SOCAN has had a “fitness” tariff for years and the issues should not have been all that complicated, or so one would have thought.

To remind readers, SOCAN is the collective for composers, authors and music publishers. Re:Sound (formerly NRCC) represents performers and sound recording producers. Readers may also recall that it was Re:Sound that tried – not surprisingly unsuccessfully – to convince the Supreme Court of Canada that the word “excludes” actually means “includes”, after having not surprisingly failed to do so before the Board and the Federal Court of Appeal.

But even after all of this, and eight years later, the Board still doesn’t tell us what the final tariff will actually cost Canadian fitness fans in the end. One would think that such information would be useful if not indispensable. The Board sometimes estimates the overall cost of its tariffs. It seems to me that it once did so regularly, and it did so indeed in the recent Access Copyright decision re Provincial and Territorial Governments.

Indeed, it should arguably be required to do so in every case, given the public interest aspect of tariff setting. The regulations I have long argued for should spell this out. If the Board doesn’t know with reasonable certainty what the overall cost of a tariff will be, it arguably should not be certifying the tariff. Moreover, all collectives with certified tariffs should be required to publish reasonably detailed information annually on receipts, costs of administration and distribution, including average and mean amounts to individual creators. Some collectives are at least somewhat forthcoming on some of these numbers – but overall, there is far from sufficient disclosure. Oddly enough, Access Copyright is actually reasonably forthcoming and its 2014 annual report confirms the fact that its “average total payback payment” is $281.87. That’s less than many junior lawyers bill per hour these days.

This case shows fairly clearly some of the ways that things can go wrong at Board hearings.  The main problems appear to be as follows.

1.   Re:Sound greatly overstated and overreached in its initial proposal. In this fitness case, the Board knew, to its credit, that there was huge overreaching going on here. In its July 6, 2012 decision in this case from 2012, it said with uncharacteristic frankness:

[112] The quantum proposed by Re:Sound, $86
million, is at least five times as much as what
Re:Sound receives from commercial radio
stations. This offends common sense: all things
being equal, the value of sound recordings to
commercial radio must be much more than for
fitness centres
(emphasis added)

2.   As I earlier have blogged, five years and three months after this proposed Re:Sound “fitness” tariff was filed on June 2,  2007, and two years and two months after the hearing was finished, the Copyright Board determined in it July 6, 2012 decision that “The Board has rejected the expert evidence of Re:Sound and the Objectors as unreliable.” (Para. 162). Here is the list of the evidence, most of which the Board rejected and the parade of witnesses including the “experts” who presented all of the evidence that in turn led the Board to conclude that:

[162] The fact that evidence exists in the matter under consideration does not mean it is reliable. The Board has rejected the expert evidence of Re:Sound and the Objectors as unreliable. The Board has not rejected the factual evidence filed by the parties. As such, this makes it difficult to claim that there is no evidence whatsoever, a necessary criterion in the Other Sites decision. (emphasis added)

3.   Such a statement from the Board is really remarkable when considered in context. Even allowing for the partial - though not unlimited - latitude given to administrative tribunals concerning the normal rules of evidence, the Board has consistently shown an arguably unwarranted tolerance for hearsay and so-called “expert” evidence that would never see the light of day in a normal courtroom – and all of which takes up enormous amounts of time and expense and too often results in a standoff of unreliability. As for unreliability, The Board has seen some bad evidence over the years – including the flimsy and even fictitious. The Board has even imposed an expensive de novo $48 million interim tariff over the objection that “little evidence other than bald assertions” of counsel was before the Board, and even where there was no actual previous tariff was in place.  Still, taking all of this history of tolerance of dubious evidence into account, the Board found the expert evidence in this case to be “unreliable” all the way around. I haven’t looked at the actual evidence, but I can only surmise that it must have been remarkably unreliable indeed if even the Board itself says so. And names of well-known experts led by well-known counsel were involved.

4.   Nonetheless, the Board determined that there was enough factual evidence in this case to certify a tariff but based it instead upon a simple calculation flowing from some SOCAN agreements with various fitness centres and dance class providers provided by SOCAN at the Board’s request.

5.   The trouble was that the Board never heard from the parties about the SOCAN agreements, which the parties had never seen before the Tariff was certified. That was because the Board didn’t involve the parties in this extracurricular exercise. This was the Board’s unilateral  and no doubt well-intentioned idea to solve the problems left from a mound of evidence that the Board considered to be unreliable  and a lengthy hearing that must have cost the parties a fortune. Ironically, it seems that Re:Sound knew about and could have asked for and probably would have been given copies of the SOCAN agreements – but did not do so and instead waited and sought judicial review.

6.   As Justice John Evans, the  dean of administrative law in Canada, stated in the judicial review decision:

[74] In the absence of a request from experienced counsel acting for a sophisticated client, fairness did not, in the circumstances of this case, require the Board to disclose copies of the SOCAN agreements on its own motion. In my opinion, the Board did not unfairly deprive Re:Sound of its right to know and to respond to information in the Board’s possession. Rather, Re:Sound failed to avail itself of a reasonable opportunity to ask the Board to produce information that it knew was in the Board’s possession.

7.   Nonetheless, and despite Re:Sound’s failure to exercise its rights in a timely manner that might have saved a lot of trouble and cost, the Board’s well-intentioned but not well executed efforts were sufficient for the FCA to conclude that:

[81] Since the tariff set by the Board was based entirely on a methodology not raised as an issue at any point in the decision-making process, Tariff 6.B cannot stand. The matter must be remitted to the Board for redetermination of the royalties payable for the use of recordings of musical works in fitness classes after it has disclosed to the parties any information that it alone has on the ground on which it based its decision and has provided the parties with an opportunity to address it.

8.   After the matter was sent back to the Board for redetermination, the parties promptly reached a settlement, which is their right but which also requires the Board's approval because of the public interest "tariff" aspect. Under the circumstances, which included the sophisticated and representative nature of the parties, one might have expected prompt approval. However, the Board decided to recall a member who had been involved in the original hearing but who had retired from the Board in 2012. The Board also decided that the Board’s Chair, whose term expired on May 13, 2014, would remain involved on this file for what turned out to be almost a year after his retirement from the Board. It remains unclear why it took over a year essentially to approve a settlement between sophisticated parties, and why it was necessary that two retired Board members were involved. We also don’t know and won’t likely find out how much time the two retired members spent on the file and what additional costs were incurred by their post-retirement involvement. By the way, settlements are normally respected and encouraged by normal courts – even when major public policy issues are involved. Recently, a very major drug patent case with a host of interveners and enormous public policy implications was settled literally on the eve of a Supreme Court of Canada hearing and many important interveners were thus denied an opportunity to make their arguments as a result of this ultra-last minute settlement.

9.   Even at the redetermination stage, the Board was clearly troubled by the lack of evidence overall, but finally – after more than a year – relied on the settlement agreement, except for the provisions dealing with background music in fitness areas and for skating activities, which had been previously decided by the Board and not set aside by the Federal Court of Appeal. The Board noted:

[36] Third, since we have rejected the SOCAN Agreements as a basis for any rates in the tariff, we are in a difficult position given that Re:Sound is entitled to a tariff for the use of sound recordings in fitness and dance classes, that we are required to certify one, but that we do not have any usable evidence pertaining to the value of such tariff.

[37] The Settlement Tariff does however provide us with a basis for setting a tariff, which we consider fair and equitable. In the present circumstances, the exercise of the Board’s inherent discretion to consider the Settlement Tariff, under the aforementioned situation created by the absence of reliable evidence, is both reasonable and desirable.
(emphasis and highlight added)

So – the bottom line in this case as to why it took so long and why it has come to such an apparently indecisive, inconclusive  and delayed resolution in so many ways appears to involve the following factors:
  •  Initial overreaching by collective
  • “Unreliable” expert evidence all the way around 
  •  Procedural unfairness by the Board 
  •  Absence of reliable evidence, even at the redetermination 
  •  Long and inexplicable delay in redetermination – even with a settlement between sophisticated parties and their well-known counsel. In the Federal Court of Appeal and the redetermination, Re:Sound was represented by Glen Bloom of Osler’s, Goodlife by Andrea Rush (then of Heenan, Blaikie)  and the Fitness Institute of Canada by David Fewer, the Director of the public interest clinic CIPPIC  (apparently acting in this instance his private practice capacity).
 And why am I pessimistic that we have not yet seen closure on this tariff? It is the fact that the Board clearly indicated in the original decision that it expects better evidence next time.  This particular tariff was for the period of 2008-2012. This sort of disconcerting retroactivity is the way the Board now normally works. So, there will be another hearing sometime in the future to deal with the period after 2012. Also, there is the somewhat unsettling comment about the settlement, namely:
 [54] Second, the Settlement Tariff is substantially different from the tariff originally proposed which is the source of this proceeding, or the certified tariff that is currently applicable on an interim basis, since 2012. We have already discussed those differences. Certifying a new tariff with different rates and formulas could create administrative and financial difficulties if Re:Sound decides to collect royalties retroactively as adjustment payments would have to be recalculated. These difficulties could be exacerbated in cases where a user was not represented by the Parties during the negotiation of the Settlement Tariff. As such, the balance of convenience could lead Re:Sound to refrain from retroactively collecting royalties from users who have already paid under Tariff 6.B and who were not represented by the Parties during the negotiations leading to the Settlement Tariff.

The Board may also be suggesting in the recent decision that it is uncomfortable with the possibility of Re:Sound attempting to retroactively enforce  what may be higher rates for some entities that weren’t “represented by the Parties during the negotiation of the Settlement Tariff”.

Above all, the public interest factor is frustrated by the absence of a reasoned estimate as to how much this tariff will cost the Canadian public overall.

Once again, these developments only underscore the need that the Government should, at the earliest opportunity:
  • Appoint a Chair who is already knowledgeable about copyright and administrative law and possibly even other desirable areas such as competition or communications law and who is willing and able to deal with any issues that need to be dealt with inside the Board 
  • Implement regulations that could prevent the kind of problems and delays that are clearly evident in this and many other cases from happening again in the future.

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