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.

According to the Board:

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

use.

[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, 2014, which 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.

(Highlight added. So much for AC’s desperate reliance on the unsatisfactory PwC study.)

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.

HPK

Access Copyright’s Judicial Review of Provincial Tariff: Initial Intransigence Meets Remedial Overreach and the Road to Redemption

Here’s an update on the Access Copyright (“AC”) Provincial Tariff that is now finally moving along in the process of judicial review, after an unusually slow and unusual start.

To remind readers, as I duly reported on May 22, 2015:

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.

These low rates may be contrasted with the much more generous rates that the Board recently awarded to AC for its K-12 Tariff, of which I shall have something to say in due course.

The judicial review (in layperson’s language “appeal”) process started off with an epochal procedural wrangle precipitated by AC’s basic, inexplicable and fundamentally erroneous failure to serve complete Rule 306 affidavit material containing all the material that it that would need to support its eventual memorandum of fact and law and its Rule 309 record. For whatever reasons, AC did not include a very large number of the basic documents that were used at the Copyright Board in its Rule 306 Affidavit that it eventually purported to submit to the Court in its JR Rule 309 Record – after the Respondents had duly served their material pursuant to Rule 307.  Federal Court nerds may possibly find this interesting. Almost certainly, nobody else will. But it is important – because the rules are there for a purpose, and AC’s failure in this case was potentially prejudicial to the Respondents.

The Respondent provinces and territories eventually reacted with a motion, given their unsuccessful informal attempt to get AC back on track in terms of the very clear Federal Courts Rules that had been ignored. Soon, the parties were “knee deep” in motion commotion. Without going into excessive detail, the Court was, in the result, apparently upset with both sides.

The Federal Court of Appeal basically said “A Pox on Both Your Houses”.  Frankly, it’s a little surprising that AC somehow escaped without getting punished with costs - since it was AC’s obvious error that started this entire encounter and the Respondents were forced to respond with some kind of motion. Nonetheless, here’s the bottom line of FCA’s November 26, 2015 procedural ruling – from Justice Stratas, a noted expert on the art of advocacy:

[34]           This motion was about a minor, fixable mistake. As long as humans are involved in litigating cases, no matter how much they try to prevent mistakes, mistakes like this will sometimes happen, even by excellent counsel. Happily, most procedural mistakes, like the one in this case, do not seriously implicate clients’ rights. Mistakes of this sort should be nothing more than a minor inconvenience during the drive to the ultimate destination—a judicial determination on the merits that to all is proper and fair.

[35]           But here, the parties pulled over to the side of the road and stopped to fight, forgetting the destination. After Access Copyright made its mistake, the respondents wrote, pointing out the mistake. Despite the clarity of the relevant rules, Access Copyright dug in its heels, maintaining its position rather than reassessing it. In reaction to that, the respondents brought their motion. But they too showed inflexibility, forcefully asserting their position that Access Copyright should be prevented in the judicial review from using any of the material it improperly included in its application record, whether or not it was needed by the Court. In counter-reaction to that, Access Copyright brought a counter-motion—one that in the end is unnecessary for this Court to determine—proposing a lesser, more practical remedy. In that counter-motion, it laudably advanced submissions showing an awareness of its mistake. But that changed nothing: everyone has remained stuck on the side of the road.

[36]           All have acted in good faith, representing their clients’ interests vigorously, advocating their positions with characteristic excellence. But here initial intransigence begat a motion with remedial overreach, and remedial overreach begat a counter-motion. Forgotten was the destination: this Court, as a practical problem-solver, simply wants to determine the judicial review properly and fairly on the merits, using a proper and fair evidentiary record. The focus should have been on a fix, not a fight.

[37]           An order shall issue in accordance with these reasons. There shall be no order for costs.

(highlight added)

Anyway, after an avoidable delay of several months, the case somehow now lurches forward finally on the merits. No doubt, the Parties will be on their best redemptive behaviour in terms of following the rules and focussing on principles and not on procedure.

Here are the seven points that AC considers to be “in issue”:

1. What is the standard of review to be applied with respect to the challenges to the Decision advanced by Access Copyright?

2. Did the Board exceed its jurisdiction by removing the Deletion Provision, the effect of which was removing the making of digital copies as a class of use under the second tariff (2010-2014)?

3. Was Access Copyright denied procedural fairness in the manner in which the issue of its authority to license digital copying was first raised; and was Access Copyright denied a meaningful opportunity to present its evidence responsive to the issue and have such evidence fully and fairly considered by the Board?

4. Was Access Copyright denied procedural fairness in the manner in which the Board excluded five copying events on the basis that they exceeded the copying limits under the proposed tariffs, despite neither the Respondents nor the Board ever having raised the issue prior, during or after the hearing?

5. Was the Board correct in concluding that the issue of "what constitutes a substantial part of a work" may be determined solely on a quantitative assessment of the portions copied and without regard to whether a substantial part of the author's skill and judgment has been copied?

6. Was the Board correct in assessing fair dealing without regard to the recognized evidential and persuasive burdens or misapplying those burdens given the evidence, or absence of evidence, before it?

7. Was the Board correct in determining that fair dealing is to be assessed without considering the public interest in balancing the objectives of the Act; that fairness is to be assessed in an atomistic and isolated view of the fairness factors; and that the qualitative nature of the amount of the dealing and the aggregate volume of copying are not to be considered in the fairness assessment?

Here are the three factums in the judicial review case, which contain the Respondents’ responses:

·       AC’sFactum

·       Provinces and Territories (other than BC, Ontario & Quebec) Factum

·       BC’s Factum

HPK

Access Copyright and Absent Universities & Colleges – As the Mandatory Elephant in the Room Patiently Waits and Watches

(Forbes)

Here's an update on the Access Copyright Hearing for a Post-Secondary tariff that supposedly was concluded on January 22, 2016.

I attended to hear the final oral arguments in Access Copyright’s Post-Secondary tariff hearing at the Copyright Board on Friday, January 22, 2016. Conspicuously absent as participants were the AUCC (which now calls itself Universities Canada) and ACCC (which now calls itself Colleges and Institutes Canada), both of which might have been expected to represent the interests of Canada’s universities and colleges respectively. They had both withdrawn much earlier, though only after having already spent  by mid-2012 almost three million dollars ($3,000,000) that we know about to accomplish apparently little if anything other than providing a huge amount of interrogatory information from far more institutions than necessary  (even notwithstanding an explicit ruling from the Board about this) for the benefit of AC  and reaching model agreements that have been widely rejected by their own members and developing a set of fair dealing guidelines that are now being frontally challenged both at the Copyright Board and in the Federal Court. But I’ve said all this before at great length, for example here, here and here. Etc. etc.

Access Copyright (“AC”) is, among other things, seeking $26 per FTE university student and rigorous record keeping and intrusive audit rights. If AC gets anything close to what it wants, the result could be a very major, expensive and intrusive chill on education and research on Canadian university and college campuses.

The as yet publicly unexplained and perhaps inexplicable absence of AUCC and ACCC puts the Copyright Board in a difficult and unprecedented position for a case of this importance. As I’ve suggested before, the Board could have taken  on more of an “inquisitorial” role than usual – since there was nobody there to challenge AC’s evidence and legal submissions.  On occasion, a few tariffs have slipped through essentially, if not completely, unopposed because they were insufficiently commercially important to warrant even minimal opposition.  However, this is one that is potentially worth tens of millions of dollars per year and which has the potential to impose enormous copyright chill and compliance expense and inconvenience on Canadian university and college campuses. Important public policy is at stake.

All I will say about AC’s case from I’ve read and seen and heard is that its evidence and legal submissions – especially on the significance of Supreme Court of Canada case law – were clearly highly contentious and readily questionable, although there was nobody there to contest or to question. It’s very hard to understand why there was no effective and efficient challenge on the merits to AC’s application, including a challenge to the Board’s original interim tariff. It is this unchallenged interim tariff that is now the basis for the litigation against York University. I suggested at the time how it might have been challenged and commented on the fact that it was not.

Based upon what I heard on January 22, 2016, it does not appear that the Board was noticeably much more “inquisitorial” than usual. In an “inquisitorial” role, the Board could, to some extent, take it upon itself to do more research and ask more questions about the evidence and the legal submissions than it would normally do, the “normal” situation being where the presence of opposing competent counsel would  presumably ensure the unfolding of the adversarial process for which the Board is designed. The Board could have exercised appropriate inquisitorial powers (i.e. ask its own questions and do its own investigations) in order to deal with the lack of submissions or inadequate submissions or evidence from one or more parties. As long as the Board ensures procedural fairness, this kind of approach is not only OK. This may have happened to some extent. However, it was not particularly obvious during the closing arguments that it did happen here in this instance to any significantly greater extent than usual.

The Board’s staff can, of course, play a role here – but that role is limited. Their involvement cannot cross the line of procedural fairness to the point where Board members are basing their decisions on material or arguments of which AC is unaware and to which it cannot respond. The “record” is what it is – and in this case, thanks to AUCC and ACCC, it is unsatisfactory and incomplete. That said, the Board showed in the recent K-12 decision that it is prepared to adopt its own methodology, subject of course to procedural fairness concerns. See paras 350 and 351. I’ll have more to say about this decision another day.

There was the unusual participation as a lone individual intervenor, namely one Mr. Sean Maguire, a university student with several bachelors and master’s degrees who is currently a part-time undergraduate student at Ryerson. He apparently has had enough time and interest to remain involved throughout for more than five years, and has apparently been involved in at least one other Board hearing.  His presence was in no way a substitute for the absence of those who could and should have been there. Mr. Maguire made it explicitly clear that he repented only himself. And he is clearly neither a lawyer nor a typical student, given his several degrees and ongoing student status. Thus, this proceeding was a default proceeding for all intents and purposes. 

Some of the questions from Board members did indicate concern with relevant issues and appreciation of the importance of relevant jurisprudence from the Supreme Court of Canada. However, the questioning was no more “inquisitorial” than usual.

All that said, there was one obvious issue that apparently was not raised by anyone, including the Board, on the final day or even earlier in the week according to reliable observers. This, of course,  concerns the “mandatory tariff” issue. Spoiler alert – this is the “elephant in the room” issue.

As readers of this blog will know, the Supreme Court of Canada made an extremely important November 26, 2015 ruling on this issue in the CBC v. SODRAC case, based upon submissions that I made on behalf of Prof. Ariel Katz and the Centre for Intellectual Property Policy led at the time by Prof. David Lametti, now David Lametti, M.P. While reiterating my usual disclaimer about how this blog should not be taken as legal advice, the relevant paragraphs of which follow below, arguably mean that whatever tariff the Board may award in the current post-secondary proceeding is optional as far as universities and colleges are concerned. There will be some who disagree with me about this for whatever reason, or who don’t understand the Supreme Court of Canada decision.

For further background on the mandatory tariff theory – which has gone way beyond from being a theory to a clear ruling by the Supreme Court of Canada – readers may wish to review:

- Our factum, which can be found here, and which was necessarily limited to ten pages

- Our oral argument, which can be viewed and heard here at the 152 mark

- The transcript, which is available from the Supreme Court of Canada

- Prof. Ariel Katz’ two “Spectre” articles, which have no page limit constraint, the   first of which is now available online and which can be found here.

Let us hope that organizations that can benefit from this historic ruling will do so. They should read and heed the actual clear, lucid and eminently readable rulings of the Supreme Court of Canada and not rely only upon what may be excessively cautious, and possibly incomplete or inaccurate (as we occasionally seen) commentary on the Court’s series of landmark decisions involving fair dealing and now culminating in a dozen or so paragraphs explaining why tariffs are not mandatory. They should also read Ariel Katz’ recent remarks about the evolution of users from being copyright children to copyright adults. This decision should ensure that Canada’s copyright children have finally come of age.

Anyway, don’t take my word for any of this about the mandatory tariff theory.  Here is what Justice Rothstein said on behalf of the Supreme Court of Canada in the recent CBC v. SODRAC case and here is the factum on which this ruling was based:

Once again, for convenience, here are the pertinent, clear and concise paragraphs from the Supreme Court of Canada decision about whether or not tariffs are mandatory:

(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.

There have been some notable post-hearing comments submitted to the Board. The first is a letter from York University dated February 9, 2016. York, as is well known, is being sued by Access Copyright – and I’ll have more to say about that litigation in due course. However, in light of that litigation, which is based upon the “Interim Tariff” in the hearing under discussion, it’s notable that there is no explicit reference in York’s letter to the extremely important ruling of the SCC concerning “mandatory tariffs” mentioned above. There is only a rather indirect and oblique reference to the issue on page 5 of the letter to the “hypothetical example” of a university having to pay the full $26 per FTE for having made a “single copy” of a work in AC’s repertoire that was not “cleared through alternative licensing arrangements”.

There’s also an important letter from several universities, including UBC, U of T and U of Alberta dated February 15, 2016 that, in contrast to the York U letter, emphasizes the importance of the “mandatory tariff” issue, uses the word “mandatory” and quotes from paragraph 111 of the CBC v. SODRAC decision. This letter is supported by letters from Brock University and Mount Royal University.

In any event, come to the Unpack SODRAC conference at Osgoode Hall Law School on Thursday, February 25, 2016 and hear and learn more….The concluding panel will be about the "mandatory tariff" issue.

The featured speaker will be none other than Justice Marshall Rothstein himself, who has recently retired from the Supreme Court of Canada. He has always been witty, wise and frank in his public appearances – and will no doubt have much to say of interest and importance.

HPK

Netflix, Technological Neutrality, Fair Dealing, Procedural Fairness and the Copyright Board of Canada

Back on September 24, 2014, I posted about how Netflix was seeking judicial review (i.e. an “appeal” in laypersons’ terminology) of a Copyright Board Tariff decision. Part of what I said then was this:

The whole technological landscape changed when Netflix launched streaming internet based video into Canada in September, 2010. Netflix was technically only an intervenor in the Board case. It is upset that the Board imposed a tariff on the one-month “free” trial membership that Netflix offers. 

Here is how Netflix is affected by the Board’s tariff:

“For a service that offers subscriptions to end-users: 1.7 per cent for the years 2007-2010 and 1.9 per cent for the years 2011-2013 of the amounts paid by subscribers. In the case of free trials, a minimum monthly fee of 6.8¢ for the years 2007- 2010 and 7.5¢ for the years 2011-2013 per free trial subscriber shall apply;”

Fair dealing for Netflix is clearly an issue. $0.068 per customer per month for free trials adds up over the years with as many millions of customers as Netflix has. Also unresolved and up in the air are issues around “downloads” and “making available right” – on the one hand, the Board says that SOCAN not entitled  but then the tariff refers to liability for downloads.

The Federal Court of Appeal (“FCA”) per Nadon, J.A. has now ruled. There is a complex history to this case going back almost a decade to 2006, which is recited in the judgment and should be read by all Copyright Board watchers. It is also noteworthy that this judicial review application was argued on October 5, 2015. The Supreme Court of Canada’s ruling in CBC v. SODRAC was rendered on November 26, 2015. This Netflix decision was rendered December 17, 2015.

Here, in the interests of immediate information with minimal comment, is the succinct bottom line of the FCA:

[52]           Before concluding, I would simply say that, in the end, rules of procedure are there to serve the interests of justice. In my view, justice in this case required that Netflix be given the opportunity of putting its case forward with regard to the issues of fair dealing and technological neutrality.

VI.             Conclusion

[53]           I would therefore allow the application for judicial review with costs, I would set aside the Board’s decision insofar as it pertains to royalties on free trials and I would return the matter to a differently constituted panel of the Board for redetermination in accordance with these reasons.

            (highlight added)

Some interesting questions naturally arise immediately: 

•  What effect might the CBC v. SODRAC decision have had on this case, if the ruling had been available at the time of argument?
•  What effect will it have if this case goes back to the Board for redetermination?
•  What effect will it have, if SOCAN should seek leave to appeal from this decision to the Supreme Court of Canada?
•  Given that two of the three members of the Copyright Board who decided the original decision in 2013 are still on the Board, and only one new member (the Chair, Justice Robert Blair) has since been appointed and there are no other currently appointed members, how will the unusual but clearly intentional reference to “a differently constituted panel” play out? Will Section 22 of the Interpretation Act concerning "quorum" need to be considered?

Other comments will doubtless follow from me and others.

HPK