The Mandatory Tariff Issue – The Follow Up and the Future – Implications for the Access Copyright v. York University Case. etc.

On November 26, 2015 the Supreme Court of Canada (“SCC”) issued what may prove to be its most important copyright ruling to date in terms of its effect on tariffs, the tariff making process, the Copyright Board and the copyright bar. This involved the “mandatory tariff” issue, upon which the SCC ruled clearly and certain concerns regarding the Board’s power to issue retroactively binding decisions, of which the SCC provocatively took note.

These aspects of the CBC v. SODRAC decision have received little attention to date but may prove far more important in both the short and long term than the ruling on reproduction rights and technological neutrality issues in the decision. The decision may have impacts such as the following:

• It arguably could and should be a crucial threshold and potentially determinative issue in the Access Copyright v. York U litigation, which is set to go to trial in the Federal Court on May 16, 2016 for three weeks.  See more below
• Needless to say, it could affect many other tariffs, and particularly the pending Post-Secondary tariff proceeding and the recently announced K-12 tariff, where it was not put in issue but may become an issue as I have suggested, if the school boards decide not to pay what they may regard as a greatly excessive rate.
• It arguably could and should have a profound effect on the way things are done at the Copyright Board, and how the Board’s tariffs are received by potential users. In particular, whether users treat the Access Copyright tariffs as mandatory will be very interesting.
• It will, hopefully, encourage the Board to come up with tariffs that are attractive and offer good value to users where collective activity is warranted and when compared to other unregulated alternatives. The result could enable such collectives to compete trough persuasion rather than coercion.
• It will hopefully encourage the Board to greatly expedite and lower the costs of tariff proceedings and to eliminate retroactively binding tariffs.

 Justice Rothstein stated as follows in the CBC v. SODRAC decision:

(112) I conclude that the statutory licensing scheme does not contemplate that licences fixed by the Board pursuant to s. 70.2 should have a mandatory binding effect against users.
…
(113) I find that licences fixed by the Board do not have mandatory binding force over a user; the Board has the statutory authority to fix the terms of licences pursuant to s. 70.2, but a user retains the ability to decide whether to become a licensee and operate pursuant to that licence, or to decline.

He also noted in the very important footnote #2 that that the interveners (who I was proud to represent) had “raised concerns regarding the Board’s power to issue retroactively binding decisions in general”. The full twelve relevant paragraphs and the footnote are appended below.

The ruling on the “mandatory” issue is no longer simply a theory held by Prof. Ariel Katz, Prof. David Lametti and me, who made the successful argument in the SCC.* It is now the law of the land.

As noted below, some naysayers have argued and can be expected to continue to argue that the ruling that tariffs are not “mandatory” is restricted to the particular so-called but misnamed “arbitration” context of the CBC v. SODRAC case. However, in my view, they would be very wrong and very short sighted. The bottom line is that Copyright Board of Canada tariffs are simply not de jure (legally) mandatory or binding on users. Admittedly, some such tariffs may be de facto mandatory for practical purposes because there is no other better and cheaper way to achieve copyright compliance. For example, radio and TV stations that don’t want to restrict themselves to Bach, Mozart and other public domain music may have no practical choice other than to deal with SOCAN.  SOCAN, for its part, has a virtually complete repertoire of all the music needed by radio and TV stations that is not in the public domain. Access Copyright, on the other hand, has a very limited repertoire in terms of what is needed by educational institutions and governments, who have many alternative ways and sources to clear their copyright needs.

For those not familiar with or interested in the technical details of our argument in our SCC factum, consider this simple layperson’s analogy. In the old days, there were “tariffs” for passenger travel on railroads. Such tariffs would set a maximum cost of, say $10, to travel from Ottawa to Toronto and required that CN Rail run four trains every day and stop in certain places, or whatever, etc. But such tariffs did not require the passenger to buy a Canada-wide all year pass for $3,000 if they only needed to travel to Toronto or Montreal or Smith’s Falls a few times each year. And above all, such tariffs did not prevent any passenger from using a plane, car, a Greyhound bus or even a bicycle to get there from here. That is how “tariffs” work. In return for some degree of privilege from the government, the regulated party providing the service and seeking to be paid must submit to upper limits on what can be charged and accept other terms and conditions, such as the nature and quality of services that must be offered. Moreover, except in very rare examples such as a sole bridge crossing with no practical alternatives, there are usually competitive substitutes available.

Naturally, certain collectives and their lawyers and lobbyists can be expected to adopt the same tactics that were deployed for over a decade after the landmark 2004 CCH v. LSUC case – which might be called “Deny, Delay and Decry”.  For example, certain collectives tried hard in 2011 in some of the Pentalogy cases to get the court to effectively reverse its landmark CCH v. LSUC ruling from just seven years previously. The attempt not only didn’t work but clearly backfired.

Indeed, just two weeks after the March 16, 2015 hearing at the SCC in CBC v. SODRAC, one of Canada’s best known and most active copyright litigators and lobbyists, Barry Sookman, was quoted in the Wire Report on March 30, 2016 in a pay-walled article entitled “Should copyright tariffs be mandatory?” as follows:

Barry Sookman, a lawyer with McCarthy Tétrault LLP who is representing Music Canada as an intervener in the Supreme Court case involving CBC and SODRAC, said the argument put forth by Knopf and CIPP "doesn't have a shred of credibility to it."

In a phone interview, Sookman said: "The Copyright Act is pretty clear that when the board goes through the process and it sets the rate, if you make a use that's within the [sic] what the board sets, you have to pay it."

The example of universities potentially being subject to a hefty tariff regime as a result of accidental usage of certain materials is "greatly exaggerated," Sookman said. He said the Copyright Board has the flexibility to "say if you do X, you have to pay, or it can set a tariff based on how much you do X."

It would seem that the SCC came to a rather different conclusion than Mr. Sookman, and that, after all, it is Mr. Sookman’s views on this issue that may not have a “shred of credibility”.  After the decision came out, he asserted quite perfunctorily and unconvincingly in his blog that:

Pursuant to Section 70.4, after the terms of a license are fixed under Section 70.2, the user retains the ability to accept or decline those terms. This decision was premised on the wording of Section 70.4 which was interpreted to give the user an election whether to accept or reject the license. Section 68.2(1) of the Act which addresses the effect of fixing tariffs certified by the Board in various other contexts and which gives collectives the right to collect royalties under an approved tariff was not considered by the Court.

In fact, s. 68.2 was specifically referred to twice in our SCC factum. It was clearly before the Court.

The only opposition to our argument during the actual SCC hearing arose in response to a direct question from Justice Rothtsein to Casey Chisick, who responded  presumably on behalf of his client of the day, the music collective CMRRA:

MR. JUSTICE ROTHSTEIN: May I just -- in your last few seconds -- Mr. Knopf argued about the jurisdiction of the Board in imposing a licence on the user. Do you agree with his argument about the Board didn't have the jurisdiction to do that or how would you approach that?

MR. CHISICK: Certainly not, Justice Rothstein. I disagree with that submission entirely. I think that it's founded on a misunderstanding of s. 70.4 of the Copyright Act, in particular, and the question of what exactly is voluntary versus what is mandatory. It's certainly clear that a user who doesn't make use of a repertoire has no obligation to pay for it. But it makes simply no sense in policy or according to the statutory scheme that a user who participates in a process before the Copyright Board those results in the setting of an arbitrated licence should then be able to walk away and say: No, thank you. I prefer not to pay for that. I'll just continue to make those copies and run the risk of being sued. It undermines the entire statutory scheme and renders it superfluous, in my submission.

The Court clearly rejected Mr. Chisick’s submission.

So, it would appear that,  if a party to a so-called “arbitration” – which really wasn’t an “arbitration” in any normal or legal sense of the word – can treat the Board’s ruling as non-mandatory, then a fortiori, parties who are not involved in the “arbitration” mechanism and who are supposedly affected by the “general regime” and who may make a single copy of a single work in the limited repertoire of a  collective in circumstances that may amount to technical infringement  should not suddenly be liable for many millions of dollars for that one copy. For a university, that liability could amount to millions of dollars retroactively for several years – a possibility of which the SCC was clearly aware, if you read our factum and watch the hearing or read the transcript. That’s simply a ridiculous possibility – but it’s what some collectives and their lawyers, lobbyists or spokespersons want users and their often overly risk averse advisors to believe is still possible. Which brings me to the present and the future.

The Follow Up and the Future

Clearly, as with any SCC decision, we look to see the follow up and the future. The potential follow up and future are both potentially imminent in two pending matters. The first is the Post-Secondary tariff, which I have recently written about. That hearing concluded on January 22, 2016 but important comments were received afterwards on the mandatory tariff issue from UBC, U of T and other universities. York University put in a long comment but only indirectly and obliquely mentioned the mandatory tariff issue. See my blog.

As for timing, the Copyright Board has, in the past, regularly taken two years or so after a hearing to render its decisions, which is virtually unheard of in other tribunals or courts in Canada. Hopefully, now that there is a new Chair in place and the issue of inexplicable delays in rendering decisions is now frontally in the public view as I have documented, we will have a decision in a matter of weeks or months (the norm is less than six months] and not years. Indeed, a decision in advance of the AC v. York U. trial beginning on May, 2016 could be potentially very useful in that context. Moreover, the SCC has clearly sent out a signal about retroactively binding decisions. Thus, the decision will hopefully come sooner rather than later.

The next – and even more important – test will be in the Access Copyright v. York University litigation, which I’ve also had much to say about, for example here. That litigation is based upon the Copyright Board’s controversial Christmas Eve interim tariff of 2010, which the AUCC (now Universities Canada) took no steps to challenge on judicial review – although there arguably were ample grounds, as I explicitly suggested at the time. An application for judicial review of the interim tariff, had it been brought in January of 2010, might have precluded the very possibility of the current litigation against York University.  And, as events have now shown, it might very well have succeeded at a very small fraction of the cost of the AC v. York U litigation, which will cost York and contributing institutions “hundreds of thousands of dollars, if not a million”, according to York GC Maureen Armstrong in an interview reported on December 29, 2015.

York University is being represented in the AC litigation by the same firm that acted for AUCC during the Copyright Board Post-Secondary hearing, from which AUCC withdrew after having spent $1.7 million, as I have noted before. The firm is indeed extremely well experienced in copyright matters, having long acted for Re:Sound, one of the most important music collectives in Canada, the plaintiff law publishers in the CCH v. LSUC case, other major content owner interests. The firm took different positions on fair dealing at the Copyright Board in the Post-Secondary case and in the SCC in the SOCAN v. Bell cases as noted by Prof. Sam Trosow. Nothing I say here should be taken as critical of York’s law firm.

Nonetheless, with no criticism intended, certain questions relevant to the public interest have arisen or may be asked as the three week AC v. York U trial set to start on May 16, 2016 looms. There are three clear overall questions that may be asked:

• What impact will the “mandatory tariff” ruling of the SCC in CBC v. SODRAC have on this litigation? Will this be presented as a threshold and fundamental issue at the trial?
• Is it still necessary for the Court to consider the apparently vast amount of evidence, including expert evidence, gathered in this case, to rule on York’s fair dealing guidelines, and to treat this as, in effect, a huge infringement action? It may be noted that AC lacks the legal standing to sue for copyright infringement as such, unless it joins the actual copyright owners – something that could raise all kinds of potential legal and political concerns.
• What will happen if York loses on the “mandatory tariff” issue, or another key issue such as fair dealing? Will it then appeal, thereby allowing potential interveners the opportunity to become involved, if the Court so permits?

 There are bound to be other questions arising before, during and after the trial – which starts on May 16, 2016 in Toronto. This has clearly been - and will be – a major event for both AC and York U, and of course all of the interested stakeholders.  The time may be inappropriate at the moment but questions have arisen or may arise again in the future concerning issues such as:

• Was there an earlier opportunity to get a ruling on whether the case could or should go forward, if the “interim tariff” is not “mandatory”? If so, why has York taken no steps to date for a summary disposition of this litigation based upon the proposition – now a ruling of the SCC - that Copyright Board tariffs, and a fortiori, interim Copyright Board tariffs, cannot be “mandatory”?  While the SCC ruled on this issue on November 26, 2015, the issue has been known about and written about for many years and before this litigation was commenced on March 8, 2013?. Prof. Ariel Katz laid out the gist of the argument quite publicly back in 2012 and tried, without success, to get the Copyright Board to deal with it in the Post-Secondary hearing. I have been writing about this innumerable times beginning even in December 2010 before the Board announced the interim tariff that is the basis of the current litigation and which AUCC did nothing to attempt to overturn on judicial review. I have long ago raised the question of whether it might have been possible to attack the pleadings at the outset on this issue.
• Could the York lawsuit have been entirely prevented if AUCC had sought timely judicial review back in January of 2011, as I explicitly suggested at the time, when such review would have been inexpensive and stood a good chance of success?
• While York has raised the issue of whether the “interim tariff” is mandatory, what is its position on a final certified tariff? The pleadings are silent on this point.
• Was it inevitable that York’s fair dealing guidelines go on trial? If so, will York be able to benefit from the Copyright Board’s extensive reasoning on fair dealing in the Provinces and K-12 decisions?
• Was it inevitable that experts, surveys, and other massive amounts of evidence be dealt with at the first phase of a bifurcated hearing if tariffs are not mandatory?
• Was it necessary for York to submit to such massive discovery, which has led to prolonged, extensive, and expensive proceedings that has threatened to be disruptive to a large community at York and even led to a policy grievance by the faculty association arising from a “Document Preservation Notice” sent by York’s former General Counsel to YUFA members? 

There was an interesting discussion on February 25, 2016 about the “Mandatory Tariff” theory and some of the above issues at York University at the Osgoode Hall/U of T “UNPACK SOCRAC” conference on February 25, 2016. Unfortunately, as I understand, the organizers of the conference were unable, for whatever reason, to persuade any official of any collective or any of their outside counsel to participate on this panel. 

Here are the slides for this panel, including mine.  You see here a wonderful “doodle” of the event by the incomparable Diva of Doodlers, @GiuliaForsythe. As usual, she captures the essence with skill, wit and insight:

HPK

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The Ruling of the Supreme Court of Canada on Mandatory Tariffs

(2)  The Board May Not Compel a User to Agree to the Terms of a Licence Against the Will of the User

(101)      CBC argues that, while the Board may fix the royalties to be paid under the statutory licensing procedure created by s. 70.2 of the Copyright Act, the Board may not set the other terms or structure of that licence. Specifically, CBC takes issue with the Board’s decision to impose an interim licence on a blanket basis, such that CBC pays for access to the entire SODRAC repertoire, rather than on CBC’s preferred transactional basis, whereby CBC would pay only whenever it actually used a work from the SODRAC repertoire. A blanket licence grants access to SODRAC’s entire repertoire for its duration, and thus reduces CBC’s ability to control its licensing costs. Under a transactional licence, by contrast, CBC may choose in any given situation whether it wishes to licence a particular work or forego making use of SODRAC music. CBC argues that if the collective organization and the user disagree over the model a licence is to take — blanket or transactional — the Board lacks the power to compel the execution of a licence.

(102)      SODRAC counters that the Board has the power to issue licences in either blanket or transactional form, and should have this power in all proceedings under s. 70.2. To hold otherwise, it argues, would be “to make the Board’s remedial jurisdiction under section 70.2 dependent upon the consent of a user, [and] would be at odds with its mandate to resolve disputes”: R.F., at para. 133.

(103)      Though CBC first raised this issue in the context of the Board’s Interim Licence Decision, the dispute relates generally to the Board’s power to structure licences, whether interim or not: Does the Board’s power to set the terms of a licence include the power to bind the parties to those terms?

(104)      I do not read the Copyright Act to necessitate that decisions made pursuant to the Board’s licence-setting proceedings under s. 70.2 have a binding effect against users. Section 70.2 itself provides that where a collective organization and a user cannot agree on the terms of a licence, either party may apply to the Board to “fix the royalties and their related terms and conditions”: Copyright Act, s. 70.2(1). This grant of power speaks of the Board’s authority to set down in writing a set of terms that, in its opinion, represent a fair deal to licence the use of the works at issue. It says nothing, however, about whether these terms are to be binding against the user.

(105)      The statutory context supports the conclusion that licences crafted pursuant to s. 70.2 proceedings are not automatically binding on users. Section 70.4 of the Act provides:

70.4 Where any royalties are fixed for a period pursuant to subsection 70.2(2), the person concerned may, during the period, subject to the related terms and conditions fixed by the Board and to the terms and conditions set out in the scheme and on paying or offering to pay the royalties, do the act with respect to which the royalties and their related terms and conditions are fixed and the collective society may, without prejudice to any other remedies available to it, collect the royalties or, in default of their payment, recover them in a court of competent jurisdiction.

(106)      This provision makes it clear that a user whose copying activities were the subject of a s. 70.2 proceeding may avail itself of the terms and conditions established by the Board as a way to gain authorization to engage in the activity contemplated in the Board proceeding. The language of s. 70.4 does not, of its own force, bind the user to the terms and conditions of the licence.

(107)      The conclusion that Board licences established pursuant to s. 70.2 are not binding on users comports with the more general legal principle that “no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate or toll, except upon clear and distinct legal authority”: Gosling v. Veley (1850), 12 Q.B. 328, 116 E.R. 891, at p. 407, as approved and adopted in Ontario English Catholic Teachers’ Assn. v. Ontario (Attorney General), 2001 SCC 15, [2001] 1 S.C.R. 470, at para. 77, and Attorney-General v. Wilts United Dairies, Ltd. (1921), 37 T.L.R. 884 (C.A.), at p. 885. To bind a user to a licence would be to make it liable according to its terms and conditions should it engage in the covered activity. In the absence of clear and distinct legal authority showing that this was Parliament’s intent, the burdens of a licence should not be imposed on a user who does not consent to be bound by its terms.

(108)      SODRAC’s framing of the issue is not entirely wrong: the Board does have the power under s. 70.2 to “fix the royalties and their related terms and conditions”. That is, the Board may decide upon a fair royalty to be paid should the user decide to engage in the activity at issue under the terms of a licence. However, this power does not contain within it the power to force these terms on a user who, having reviewed the terms, decided that engaging in licensed copying is not the way to proceed. Of course, should the user then engage in unauthorized copying regardless, it will remain liable for infringement. But it will not be liable as a licensee unless it affirmatively assumes the benefits and burdens of the licence.

(109)      The matter is complicated considerably by the fact that the Board’s statutory licence decisions have, in recent years, taken on an increasingly retroactive character. CBC’s statutory licence in this case provides an example: the licence covers the period from November 2008 to March 2012, but the Board’s final decision was issued on November 2, 2012, after the term of the licence had expired. In situations like these, the Board may issue interim licences that seek to fill the legal vacuum before the final decision is ready, but this leaves a user to operate based on assumptions about how their ultimate liability for actions taken during the interim period will be evaluated.

(110)      Should a user engage in copying activity under an interim licence, and then find itself presented with a final licence whose terms it would not voluntarily assume, the user is left in a difficult position: accept the terms of an undesirable licence, or decline the licence and retroactively delegitimize the covered activity engaged in during the interim period, risking an infringement suit. This dilemma may mean that a user who operates under an interim licence has no realistic choice but to assume the terms of the final licence.

(111)      While I find this possibility troubling, I do not find that this result would detract from the more general proposition that there is no legal basis on which to hold users to the terms of a licence without their assent. The licence is not de jure binding against users, even if the particulars of a specific proceeding, and a user’s decision to engage in covered activity during an interim period, may mean that the user does not de facto have a realistic choice to decline the licence.^[2]

(112)      I conclude that the statutory licensing scheme does not contemplate that licences fixed by the Board pursuant to s. 70.2 should have a mandatory binding effect against users. However, this case does not require this Court to decide whether the same is true of collective organizations. It may be that the statutory scheme’s focus on regulating the actions of collective organizations, and the case law’s focus on ensuring that such organizations do not devolve into “instruments of oppression and extortion” (Vigneux v. Canadian Performing Right Society Ltd., [1943] S.C.R. 348, at p. 356, per Duff J., quoting Hanfstaengl v. Empire Palace, [1894] 3 Ch. 109, at p. 128) would justify finding that the Board does have the power to bind collective organizations to a licence based on the user’s preferred model — transactional or blanket — on terms that the Board finds fair in view of that model. However, this issue was not argued in this case.

(113)        I find that licences fixed by the Board do not have mandatory binding force over a user; the Board has the statutory authority to fix the terms of licences pursuant to s. 70.2, but a user retains the ability to decide whether to become a licensee and operate pursuant to that licence, or to decline.

(highlight added)

[2]  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.

(highlight added)

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* I was honoured to represent at the SCC the Interveners Prof. Ariel Katz and the Centre for Intellectual Property Policy (then under the direction of Prof. David Lametti, who is now David Lametti, M.P. and Parliamentary Secretary to the Minister of International Trade). It was our submissions that persuaded the Court on the above issues and which are reflected in Justice Rothstein’s reasons. Here’s our factum. Here’s the video of the oral argument, wherein our submissions on the mandatory tariff begin at the 152 mark and consisted mostly of an interesting interchange between me and Justice Rothstein that presaged the eventual ruling. Our submissions on the retroactivity issue in response to a question from Justice Karakatsanis begin at 163 and took us into overtime. Once again, the interchange presaged the result.