Tuesday, August 13, 2019

Retransmission – Mission Accomplished?

After nearly 6 ½ years, on August 2, 2019 the Copyright Board of Canada has finally issued its retransmission tariff and reasons for its decision for the years 2014 to 2018. Spoiler alert: the maximum rate for each Canadian cable subscriber will increase from the previous amount of $.98 to $1.17. This seems like a relatively modest amount that will not likely be noticed by any Canadians who are still cable subscribers at arguably outrageous rates and have not become part of the increasing horde of cord cutters. It is virtually certain that all of this increase will be passed along to the subscribers along with the enormous cost of these hearings, which resulted in a 157-page decision. It could have been worse from the objectors’ standpoint, since the collectives attempted after some interrogatories two years or so into the process to more than double the amount. If the collectives had gotten what they wished for, it would have been worth about another $100 million a year – for the past several years and going forward.

This is the only substantial or substantive decision of the Copyright Board so far in 2019. It is one of the longest decisions that I can recall from the Board, although not quite as long as the first-ever retransmission decision which ran to 178 pages and which set the stage for an unexpectedly high tariff right out of the gate. Here’s what I said about the origins of this tariff in the context of the current hearing:
Canada, unlike the USA, did not spell out a formula in the legislation for what was to be a distant signal and left the mechanics of it all to the then new Copyright Board. Distant signals were eventually defined by regulation in an ultra-complex manner potentially much more generous to copyright owners than the US mechanism. The Board’s first tariff in 1990, following an extremely long “inaugural” tariff hearing, was worth about $53 million p.a., an amount about 9 times more than anyone ever expected at the time – even including the proponents of the tariff. A rather tepid subsequent “criteria” regulation resulted in a very modest cutback of about $3 million a year in 1993. For twenty years, Canadian cable subscribers paid $0.70 per month that was included in their cable or satellite bill for access to “distant” signals. This amount was increased to $0.98 per month in 2013 and so certified by the Board pursuant to a negotiated agreement. 

Interestingly, the Board’s first retransmission tariff decision – and its first ever major decision under the new Copyright Board regime established in 1989 that replaced the old, honourable and very efficient Copyright Appeal Board regime that lasted for six decades or so – was delivered in less than 14 months from the time of publication of the proposed tariff in the Canada Gazette. That was in the good old days under the leadership of the very esteemed and long since retired Michel Hétu as Vice Chair, who was a distinguished lawyer and expert advisor in his days in the Department of Justice before his appointment to the Board.

This is the first full retransmission hearing since the 1990 decision, apart from a proceeding that result in a small downward adjustment in 1993 following the implementation of “criteria” by way of regulations intended to respond to the outcry over the unexpectedly high tariff set in 1990. This hearing featured abundant new expert evidence and suggested approaches. In the end, the Board adopted what appears to a blend of what the parties presented and the Board’s own approach.

Probably the most interesting part of the current decision is a Board’s discussion about the arcane doctrine of “non ultra petita”, which roughly entails the notion that a court or board should not give a party more than it initially asks for, since opponents who might have objected may have remained silent in reliance on the initial demands.

The Board held that:
[233] These proceedings do not attract the application of non ultra petita, however. All participants are well aware of the Collectives’ revised rates and what they are requesting. The entire hearing, and the expert and other evidence presented, revolved around the revised request. The issue is whether the Board should permit the revised claim to be considered and, if so, to what extent. That is a matter of procedural fairness and the Board’s power to amend or vary a proposed tariff.

Interestingly enough, the Board ruled on the one hand that it can override or avoid the application of the “non ultra petita” doctrine but effectively achieved a similar result based upon an apparently newly enhanced sensitivity to the retroactivity issue:
[238] In the circumstances of this case, we think it unlikely that Retransmitters – in the face of such a significant potential retroactive increase in royalties over such an extended period of time – would be able to find reasonable ways in which to retroactively collect from their customers and/or otherwise set aside funds necessary to pay the difference, along with interest, between the royalties originally proposed and published in the Canada Gazette on June 1, 2013, and the royalties sought in the revised proposed tariff. This may be particularly relevant for smaller, independent and less financially-robust Retransmitters.

In a recent blog, I posted the following on the issue of retroactivity:

This has led to a persistent pattern of hearings that often take more than four years to happen, decisions that take three more years to render, and tariffs that are consequently retroactive for several years. Then, there is the almost inevitable and often successful judicial review. This inexplicable, inexcusable and unique pattern exists notwithstanding explicit Supreme Court of Canada jurisprudence going back to 1954 that says that his shouldn’t be happening. On the issue of retroactivity caused by delay, I have previously pointed to:
“….the potential invalidity of retroactive tariffs in light of the venerable 1954  Maple Leaf Broadcasting v. Composers, Authors and Publishers Association of Canada Ltd., [1954] SCR 624 (“Maple Leaf”) decision from the Supreme Court of Canada (“SCC”). That decision was concerned with a tariff on radio stations that was retroactive by less than three months and the SCC – with some rather explicit reluctance – permitted it as a “practical necessity” but stated clearly that it was the "implied duty" of the Board to proceed with "all possible expedition" in cases where tariffs may have a retroactive effect. In the recent CBC v. SODRAC 2015 SCC 57 case in the SCC, I cited this same Maple Leaf case in the factum prepared along with Prof. Ariel Katz and Prof. David Lametti (as he then was). There was considerable interest during the oral argument in the retroactivity issue and the SCC commented on it very explicitly in this unusual footnote – which may be seen as a warning signal to collectives and an invitation to users seeking judicial review of retroactive tariffs:
[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.”

It is also interesting that the Board emphasizes at paragraph 239 the importance of timely notices in the Canada Gazette is an essential means “to inform parties of the possibility to object to such a proposal”. This is not without irony, given that the new Vice Chair of the board, Nathalie Theberge, recently spoke at length about what she regarded as the positive aspects of the elimination of the decades-old requirement to post proposed tariffs in the Canada Gazette. Mme. Theberge was not a member of the panel that decided retransmission, since the file was opened, and the hearings took place long before her own appointment last year.

There is also considerable discussion of the concept of “competitive market”, which is something of an oxymoron in any discussion of de facto mandatory tariffs that are built upon highly prescribed regulations in a context where the costs will almost certainly be passed along 100% to those Canadian consumers who have not taken the initiative to “cut the cord”. Indeed, there was some discussion about “cord cutting”. One of the great frustrations and illustrations of the dysfunctionality of the Copyright Board is that, while it attempts valiantly to analyse massive amounts of presumably relevant and expert evidence, such evidence can become manifestly irrelevant and unreliable in the face of a rapidly changing economic and technological environment when hearings in the decision-making process takes so long – in this case 6 ½ years. That is a very long time in Internet time when one considers the rapid proliferation of OTT services such as Netflix and the increasing proliferation of cord cutting. The use of VPN, Facebook and other tools enables many consumers to get all the basic news and entertainment they may want online legally for free or for much lower costs than Canadian cable companies have imposed for so many years.

In any event, subject to the outcome of judicial review, we now know more than six years after the proposed tariff was filed what the cost of the cable retransmission tariff will be for 2014 to 2018. No doubt the cable companies have set aside a reserve for the relatively modest increases and will surely be able to pass the costs along to their consumers. The Board’s apparently enhanced concern for retroactivity when it can impose potentially extreme consequences is a welcome development but begs the question of the obvious overall retroactivity of the entire process.

Once again, the the lawyers and expert witnesses have no doubt done very well in this long process. Moreover, it ain’t over till it’s over as Yogi Berra famously said. Indeed, because the parties wanted an early ruling on the overall quantum so that they could better determine its allocation, the Board – in an unusual move – announced the rates for this tariff back on December 18, 2019 – which immediately triggered two judicial review applications 30 days later.  These applications were ordered to be “held in abeyance pending the release of the Copyright Board's reasons for the Decision”. Well, that movement has now arrived.

It would seem likely that the judicial review applications will be pursued, given the amount of money involved that is, on its face, ~ $100,000,000 PER YEAR going back to 2014 and going forward. The chance of success may  not be high, considering that the Court normally defers to the Board on number crunching – but there are some legal issues involved and the SCC will presumably any time now release a major decision on standard of review which could provide surprises. Thus, we can look forward to another year or two of activity in the Federal Court of Appeal, with a possible remand to the Copyright Board and/or a possible appeal, if leave is granted, to the Supreme Court of Canada – with a possible remand after all the to the Copyright Board. So, it could be several years before this over. Who knows how many cable customers will be left at that point? But that’s another matter?

Like a broken old vinyl record, I keep reminding everyone that the PMNOC (Patented Medicines Notice of Compliance)  proceedings, which can often involve comparably enormous if not even more amounts of money than may be at stake in this case, MUST be dealt with from start to finish including the Court’s decision within 24 months.


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