Undoing the Damage of the Federal Court of Appeal’s Decision on “Mandatory” Tariffs

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In April of this year, the Federal Court of Appeal (FCA) handed down its decision on the appeal by York University of an earlier Federal Court decision regarding a dispute between York and Access Copyright (the authors and publishing collective rights management organization) over York’s unlicensed use of material from Access Copyright’s repertoire. The initial decision had found not only that York’s “Fair Dealing Guidelines” were unfair, and did not justify York’s unlicensed use of these materials, but that York was required to pay the interim tariff established by the Copyright Board of Canada for use of the works. The FCA upheld the initial Court’s conclusion that York’s Guidelines were unfair but overturned the copyright world in Canada by determining that tariffs approved by the Copyright Board were not mandatory after all. Users could decide to opt out, leaving rights-holders only one recourse; to sue unlicensed users for copyright infringement. Unfortunately, most collective societies–like Access Copyright–are not rights-holders themselves but only represent rights-holders for the purposes of collecting royalties. 

For the non-cognoscenti, it might be useful to review what an “approved tariff” is, and what role the Copyright Board of Canada plays in establishing one.  According to its website, the Copyright Board of Canada is;

an economic regulatory body empowered to establish, either mandatorily or at the request of an interested party, the royalties to be paid for the use of copyrighted works, when the administration of such copyright is entrusted to a collective-administration society.”

Collective societies like Access Copyright, SOCAN, etc. were established to facilitate the collection of royalties owed to creators (musicians, songwriters, performers, authors etc.) for use of their works given the unfeasibility of thousands of creators chasing tens of thousands of users for small payments. The intent was to use economies of scale to keep costs down for rights-holders but also to make it simple for users to legally access content. To further simplify this system, and to avoid costly and unnecessary litigation, where parties could not mutually agree on a royalty rate or licence fee, tariffs were established to set a value on the use of copyrighted materials, such as music and published works. Parties could get together to propose a tariff in lieu of a licence agreement if they agreed on the royalty rate, but where it was impossible to agree on a value, one was set through adjudication by a quasi-judicial body like the Copyright Board. This “mandatory” tariff was then applied to all users who accessed a repertoire covered by the tariff. That has been the system for several decades, ever since the late 1980s when the proliferation of photocopying led to legislation that encouraged establishment of new collective societies through amendments to the Copyright Act. It was at that time (1988) that Access Copyright was formed. 

There were further amendments in 1997 to address the challenge of digital copying. Collective societies, (licensing bodies), were given new powers including the right to file a proposed tariff with the Copyright Board setting out the terms and conditions under which reproduction of the collective’s members’ works would be permitted. After the Board had certified (approved) a tariff, collective societies were allowed to collect the specified royalty and, if not paid, recover it in court. This system worked smoothly for a number of years in the publishing sector with Access Copyright, and its clients (primarily Provincial and Territorial Ministries of Education, school boards in Ontario and post-secondary institutions) voluntarily agreeing on a value for copying. However, over time the consensus as to what constituted a fair royalty rate for copying broke down and the Copyright Board was required to determine a tariff that would have to be paid. This process was cumbersome and protracted, with the result that an interim tariff often had to be established setting out royalties to be paid pending confirmation of the final tariff. It was at this stage that York University decided to opt-out of the interim tariff (back in 2011). The case went to the Federal Court, which denied York’s right to opt-out on the basis that the interim tariff, like a final tariff, is mandatory if an unauthorized use of a work in Access Copyright’s repertoire is made. This is the decision that the FCA has now reversed. 

The FCA’s decision went further than simply declaring an interim tariff to be optional. It declared that all tariffs that had been considered “mandatory” until now were in fact optional for users—and always had been despite the fact that a number of enforcement cases in the past, where collective societies had sued non-licencees, had been decided by requiring the “mandatory” tariff be paid.  As I documented in a blog posting back in June, (“When is a “Mandatory Copyright Tariff” mandatory only if you opt-in?”) this decision was arrived at on the basis of a 1930’s era judicial precedent and the Court’s reading of the legislative record in the 1980s and 1990s. The FCA decided that the original basis for establishment of the mandatory tariff back in 1936 was still the operative legal principle. During the Great Depression, Performing Rights Organizations (PRO) were accused of withholding repertoire from users such as radio stations, sheet music publishers and record manufacturers in order to increase returns, thus behaving in an anti-competitive manner. In the 1930s, the mandatory nature of the tariff was such that if a user opted to pay the established royalty, the PRO was required (mandated) to license the content. At that time, the obligation (mandatory nature of the licence) was on the rights organization or collective society to make the content available, not on the user to pay for using the content without a licence. 

Today the situation is exactly the opposite. Collective societies are eager to license content in their repertoire; the main issue is setting a value on it. That’s where the Copyright Board’s tariff determination and approval process comes into play. Today the issue is not that users cannot get access to content, it is that they are using it without obtaining a licence. When they do so, if a tariff has been approved for that content by the Copyright Board, the understanding has always been–until the FCA’s recent decision–that users of such content are required to pay the tariff (interim or final) whether or not they have sought a licence.

In reaching its decision, the FCA sifted through the entrails of the original 1930s court case and subsequent amendments to the Copyright Act over the years. It concluded that despite substantial redrafting of legislation in both 1988 and 1997, the original elements and language of the tariff regime, and thus the intent of a mandatory tariff, had never been changed. It is a surprising conclusion and we will not know whether the FCA is right until the Supreme Court of Canada (SCC) reviews the decision if it decides to grant leave to hear the appeal. (Both York and Access Copyright have appealed). However, there is no guarantee that the SCC will grant leave (known as certiorari in the US) to hear the case. The SCC has full discretion as to whether or not to hear cases on appeal, and it is not required to provide reasons for declining to grant leave. Less than one in six cases is successful in applying for review. Even if the SCC does agree to hear the case, it will likely take several years to reach a conclusion. In the meantime, a huge pall of uncertainty has been cast over the whole structure of copyright remuneration in Canada. 

But there is another solution. That is to have Parliament clarify the situation by amending the wording of the Copyright Act so that the intent of Parliament, as expressed through amendments in the late 1980s and 1990s, is restored. After all, while the Courts interpret the law, it is Parliament that establishes and enacts it. If the law is drafted in such a way that its wording fails to fully express the will of legislators, the Court can only follow the legislation. If the legislation is faulty, fix the legislation. That is no doubt what the Association of Canadian Publishers meant when they described the situation after the FCA decision as a “broken legal framework” and called for “urgent action on the part of the federal government…to implement reforms that will correct market damage and provide a policy framework that supports future investment in Canadian writing and publishing”.

Parliament will have just such an occasion this fall when it resumes after the Throne Speech in late September, following the prorogation in August. Legislation is required to amend the Copyright Act to bring it into compliance with Canada’s commitments under the new NAFTA (aka USMCA, or CUSMA in Canada). Canada made a commitment to extend the term of copyright protection by twenty years and has 30 months from the date of implementation of the Agreement, July 1, 2020, to bring its legislation into compliance. (There are a couple of ways it can do that, as I discussed here). That process will require a period of public consultation which is why it is important that the draft legislation be introduced at an early date. This affords an opportunity to address other urgent copyright issues at the same time, using the same committee process. 

The first of these is to fix the anomalies in the Act that have led to the FCA decision that undermines the mandatory tariff regime, affecting not just Access Copyright but most collective rights management organizations in the country. The amendments would be minor, but they would rectify the damage done by the FCA’s decision and restore some order and predictability to the licensing of content in Canada through collective societies.

Another is a proposal pushed by major Canadian newspaper publishers to require that news aggregators, like Google or Facebook, share ad revenues with news creators when they distribute their content through excerpts or snippets embedded in links. This is currently a live issue in France and Australia. Google is fighting back, threatening that Australians could lose access to free search and encouraging Youtubers to bombard the Australian government with complaints. These are classic Google scare and misinformation tactics that Google can be expected to also employ in Canada should the government decide to proceed with such a measure, as has been rumoured. Likewise Facebook is playing hardball with the Australian government, threatening to remove news content from its platform if the measures are enacted into law. I plan to write on this subject in my next blog. 

So far there has been no indication as to what issues the government will embrace as it considers its legislative agenda with respect to copyright, or whether it will bring forth legislation this fall or in the spring, but the opportunity to undo the damage wrought by the FCA’s decision on “mandatory” tariffs should not be missed. If there was ever a time to restore predictability and order to the marketplace, and to right an obvious wrong, this is it. 

© Hugh Stephens 2020. All Rights Reserved. 

Author: hughstephensblog

I am a former Canadian foreign service officer and a retired executive with Time Warner. In both capacities I worked for many years in Asia. I have been writing this copyright blog since 2016, and recently published a book "In Defence of Copyright" to raise awareness of the importance of good copyright protection in Canada and globally. It is written from and for the layman's perspective (not a legal text or scholarly work), illustrated with some of the unusual copyright stories drawn from the blog. Available on Amazon and local book stores.

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