The Supreme Court of Canada (SCC) has affirmed in Canadian Broadcasting Corp. (CBC) v. SODRAC 2003 Inc.[1] that the making of ephemeral copies required in the course of broadcasting engages the right of reproduction under the Copyright Act (the Act). However, the Court has also reaffirmed the importance of the principle of technological neutrality in not only defining the boundaries of the rights granted under the Act, but also in setting the compensation payable for the exploitation of those rights.

By way of background, the SCC held in 1990[2] that the right to broadcast a musical work does not include an incidental right to make an ephemeral recording beforehand for the sole purpose of facilitating the broadcast. This holding appeared ripe for challenge in view of a 2012 decision of the SCC[3] holding that technological neutrality requires that no additional copyright royalties should be payable where a downloadable copy of a video game is transmitted to a consumer via the Internet as compared with when a copy of the video game is purchased in a store or delivered by mail. In that case, the Court held that the right to communicate the work to the public was not engaged by the transmission of a durable copy of a work via the Internet, which simply used the Internet as a technological taxi to deliver that copy.

CBC v. SODRAC was an appeal from a judicial review of the tariff-setting decision of the Copyright Board (the Board). At issue were copies made by the CBC in the course of broadcasting various programs on television and the Internet. SODRAC is a collective society that manages reproduction rights in French-language musical works on behalf of its members. As a producer of audiovisual works, CBC obtains appropriate rights to produce copies of the musical works incorporated into its programming in the course of creating a master copy of a program (referred to as “synchronization copies”). These synchronization rights are obtained by CBC from SODRAC in the case of French-language musical works in SODRAC’s repertoire. As a broadcaster, CBC obtains appropriate rights to communicate the musical works to the public via television or the Internet from a third party (not SODRAC) that administers the performing rights for the musical work.

In the course of broadcasting the program, additional copies (referred to as “broadcast-incidental copies”) are made by the CBC. In particular, broadcasters like the CBC typically load the master copy of an audiovisual program into a digital content management system. The processes used by the CBC to prepare the program for broadcast using the digital content management system result in the creation of several copies of the program in preparation for a broadcast. SODRAC sought additional compensation for the CBC’s exercise of the reproduction right in creating these broadcast-incidental copies.

Before the Board, SODRAC successfully established that CBC must pay a royalty for both the synchronization copies and the broadcast-incidental copies it creates, in addition to the royalties that it pays to broadcast the musical works incorporated into its audiovisual programming. In valuing the royalty payable, the Board had considered that more copies were required by newer technologies (in contrast to older analog systems, which stored copies on physical tapes), and therefore that a portion of the benefits attributable to the use of the technology should be reflected in compensation payable to rights holders for the additional broadcast-incidental copies required by the use of the digital content management system.

Before the SCC, the CBC argued, following the principles of technological neutrality and balance, that the broadcast-incidental copies do not engage the reproduction right. However, the Court found that these principles could not displace the clear language of the Act, and reaffirmed that the making of broadcast-incidental copies engages the reproduction right. Furthermore, the Court held that a license to make broadcast-incidental copies could not be implied from the synchronization licenses obtained by the CBC. In the Court’s view, the synchronization licenses facilitate the production of audiovisual works, which is a separate activity from the broadcast of those audiovisual works. The net result is that CBC must separately license the synchronization rights for a musical work, the right to make broadcast-incidental reproductions of that musical work, and the right to communicate that musical work to the public by telecommunication in the course of broadcasting.

With respect to the value of the broadcast-incidental copies, the Court held that the Board erred in failing to apply the principles of technological neutrality and balance in determining the royalties payable for these copies. The Court further provided additional guidance to assist the Board in applying the principle of technological neutrality. Technological neutrality requires that a user of one technology should not incur higher copyright licensing costs than a user of a different technology. However, where a user of one technology derives greater value from reproductions of a copyright protected work than a user of a different technology, then the copyright holder should receive a larger royalty from the user who obtains greater value.

The Court also offered additional guidance on how the Board should apply the principle of balance, i.e. balancing the rights of users and right-holders, in fixing license fees. The Court indicated that the Board must consider factors such as the respective contributions of and risks taken by the user and the investment made by the user, as well as the value of the copyright protected works enjoyed by the user. In this particular case, the Court suggested that the balance principle would imply relatively low license fees where the financial risks of investing in and implementing new technology were taken by the user, and the use of reproductions of copyright protected works was incidental.

The Court has remitted the matter back to the Board to reconsider the value of the license fees to be paid for the broadcast-incidental copies in accordance with the principles of technological neutrality and balance. It remains to be seen how the Board will implement these principles in valuing the license fees payable in respect of broadcast-incidental copies.

By Mark T. Romanish and Jennifer A. Marles

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