Canadian Supreme Court Says Tech May Advance, But It Will Never Outrun Collection Societies

from the Moore's-law-but-for-license-fees dept

Michael Geist has a long and detailed post on the Canadian Supreme Court's finding that broadcaster CBC does owe royalties on incidental copies of content controlled by SODRAC, a Quebec-based copyright collective.

As odd as it seems, the CBC has always paid SODRAC for incidental copies created during the production of broadcasts, including those made when shifting broadcasts to content management systems or temporary copies made to facilitate broadcasts.

The CBC had argued that it shouldn't have to pay royalties on these incidental copies, as they do not generate revenue and only exist temporarily before being deleted. SODRAC countered that the CBC has always paid these fees before, dating back to the analog era.

At the heart of the issue is neutrality: technological neutrality. The CBC says "neutrality" means not having to pay for temporary copies of content because it should be covered (or at least exempt) by the fees it already pays to license music from SODRAC. SODRAC, however, defines technological neutrality as "collecting the fees it always has," even if transitory copies are much more transitory.

SODRAC won part of the battle. It will continue to collect fees on transitory copies. How much it will get to collect for these reproductions will be decided by the Copyright Board, which the Supreme Court is urging to examine this in light of the shift in technology. Theoretically, this should result in per copy fees being lowered, but that's still to be determined.

Geist points out that the court's decision comes to several good conclusions, but also one really bad one.

First, the good:

The principle of technological neutrality is recognition that, absent parliamentary intent to the contrary, the Copyright Act should not be interpreted or applied to favour or discriminate against any particular form of technology. It is derived from the balancing of user and right-holder interests discussed by this Court in Théberge — a “balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator”: para. 30. Because this long-standing principle informs the Copyright Act as a whole, it must be maintained across all technological contexts: “The traditional balance between authors and users should be preserved in the digital environment”.

The court also takes a shot across the bow of many "copyright collectives" by refusing to buy into the "more copies = more money" theory.

The notion that “more copies mean more value and thus, more royalties” is appealing in its simplicity. However, it is out of step with the principles of technological neutrality and balance.

That's not the only shot the court took. It also undercut the copyright collectives' "job security."

[T]he court ruled that the Copyright Board may not compel a user to agree to the terms of a licence against the will of a user. In other words, Copyright Board tariffs are optional, not mandatory. This aspect of the decision will have clear reverberations for Access Copyright as educational institutions have assurances that they can decide for themselves if the collective’s licence is necessary and not have it mandated for them.

But for all the good it may have done with these determinations, it undermines them by muddying the waters in term of defining "technological neutrality" and leaving many of the controlling factors in the copyright collectives' hands.

The concern stems primarily from the majority’s decision to effectively expand technological neutrality to include not only a functional equivalence analysis (ie. ensuring that functionally equivalent technologies that are doing the same are treated equivalently) but add in a complex layer of valuation that will make judgements on royalties exceptionally subjective and uncertain.

For an outsider, the promise of court battles to come -- thanks to differing "subjective" judgments (licensees vs. licensors) -- may seem interesting/amusing. But it does no favors for the actual participants. And it does even less for participants who aren't SODRAC or an equivalent.

The future complexity from the case comes from the majority’s extensive discussion on how technological neutrality factors into questions of valuation. SODRAC had argued that it did not factor at all. The majority disagreed, concluding that technological neutrality applies to both the interpretation of the Copyright Act and its application. In doing so, the majority identifies factors for the Copyright Board to consider that have nothing to do with the rights held by the rights holder:

Relevant factors will include, but are not limited to, the risks taken by the user, the extent of the investment the user made in the new technology, and the nature of the copyright protected work’s use in the new technology. The Board must assess the respective contributions of, on the one hand, the risks taken by the user and the investment made by the user, and on the other hand, the reproductions of the copyright protected works, to the value enjoyed by the user. In this case, where the financial risks of investing in and implementing new technology were undertaken by the user and the use of reproductions of copyright protected works was incidental, the balance principle would imply relatively low licence fees to the copyright holder.

As Geist points out, even though this would seem to suggest that a "technologically neutral" approach -- in addition to other mitigating factors -- would push royalties on incidental copies closer to what they should be -- zero -- the court goes on to say "it will never be the case" that an owed royalty will amount to nothing. As soon as rights are "engaged," fees will follow, even if they're supposedly not mandatory and tied to fleeting copies made only to facilitate broadcast of a "finished" product. This also seems to suggest that while entities may have been given the right to "opt out" of licensing agreements, there won't be too many who will see this decision upheld by lower courts should collection societies force the issue.

As Geist sums up, the court aims for "technological neutrality" but hampers its own effort by taking the SODRAC view: fees have always been collected, therefore fees must always be collected.

The court has previously emphasized the need to prevent imposing additional, gratuitous fees on the user simply for the use of more efficient technologies. This decision runs directly counter to that, by actually supporting higher royalties for more efficient technologies.

As it stands, SODRAC et al will still collect royalties for copies that are never "distributed." It may not be as much as it was hoping for, but the Supreme Court has guaranteed that no matter how efficient technology may become, it will never eliminate those seeking to collect rent on nonexistent property.

Filed Under: canada, collection societies, copyright, incidental copies, royalties, tech neutrality
Companies: cbc, sodrac