Mandatory copyright tariffs - Uncharted territories

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The Federal Court of Appeal’s decision in York University v The Canadian Copyright Licensing Agency (Access Copyright) (2020 FCA 77) (“York v Access Copyright”) has been described by commentator Richard Hughes as “demolish[ing] a major pillar of the collective licensing system” – that sounds momentous, so what does it mean for those operating in Canada’s collective licensing system, and the Copyright Board of Canada’s role in setting tariffs?

The bullet-point takeaways

The York v Access Copyright decision is being appealed to the Supreme Court of Canada, so the FCA’s conclusion that copyright tariffs are not mandatory for users may be reversed – but if that finding is not reversed, it represents a seismic change in the nature of the copyright licensing scheme that has reigned in Canada for the last few decades. It is a change that will have material consequences for copyright owners, collectives, and users. Before we explore the decision in depth, we summarize how parties can adjust to this new copyright landscape. (As an aside, this discussion does not survey the FCA’s findings regarding the fair dealing claims raised in the case.)

Adjusting to a new copyright landscape

For licensees

  • As always, consider whether your business activity infringes copyright, or whether you can shelter all of or part of that activity under non-substantial taking, fair dealing, or one of the other exceptions to infringement set out in the Copyright Act.
  • Consider whether you need the licence offered by a collective pursuant to a tariff, or whether you can obtain your licence on more advantageous terms directly from the copyright owner. 
  • More broadly, recognize that tariffs are not the only option for engaging on a non-infringing basis with copyright-protected materials. The York v Access Copyright decision, recent changes to the Copyright Act regarding collective licensing, and changing industry practice indicate that there are now more factors to consider, and potentially more options for you. Whether agreeing to a tariff will make sense, it will be a function of the use/activity, budget, appetite for uncertainty, and risk profile of each user. A copyright audit can help provide guidance in respect of those factors.

For collectives and their members

  • Re-orient your business plan to recognize that the primary method of “enforcement” going forward may be claims for copyright infringement, as distinct from claims for failure to pay the licence fee called-for under a tariff.
  • Following on the foregoing, consider whether your collective should obtain a transfer or exclusive licence of rights for key rights from its members, which would enable the collective to sue for infringement. Otherwise, rightsholders may be required to initiate claims for infringement on an individual basis. Consider the advantages and disadvantages of assignment to the collective over some other model – there is a lot riding on the decision.
  • Consider lobbying to get the Copyright Act amended to make Board-certified tariffs mandatory, but know that legislative amendments may be years in the making.

The background (or, when the conventional wisdom reigned)

The administration of copyright by collective societies (sometimes referred to as “copyright management organizations” or “collectives”) is widespread in Canada – the Copyright Board of Canada lists more than two dozen collectives on its website. The argument for collective administration should be intuitive where efficiencies and economies of scale can be achieved when multiple copyright owners band together to administer their rights; so, for example, while it would be prohibitive in time, money, and effort for each individual songwriter (or even each publisher for that matter) to enter into licensing arrangements with every bar in Canada regarding playing the songwriter’s songs in the bar (which would engage the songwriter’s public performance right), a single entity empowered by songwriters to enter into such licences (a “one-stop shop”, as it were) makes life easier for both the songwriters and the bar owners.

Many collectives can, if they wish, enter into individualized “bespoke” licensing arrangements with individual licensees. In fact, the Copyright Act was recently amended to allow for more latitude for some collectives to enter into direct licences with music users. But for many decades, the primary mode of collective activity has been through “tariffs” which are presented for approval to the Copyright Board of Canada. Following a hearing, which usually involved objections, comments and opposition by proposed users, and the tariff being approved (or “certified”) by the Board, the tariff was generally regarded as “mandatory”. For example, if you were carrying out an activity which was covered by a tariff, then you had to pay the amounts stipulated in the tariff to the collective that had presented the tariff to the Copyright Board, and if you didn’t make those payments, then the collective could sue for damages equal to the amount set out in the tariff. Direct licensing has always happened—often for larger music-based businesses and/or more tailored music use models—but for most activities by most businesses, these bilateral licenses were exceptions to the rule.  So, if Copyright Collective X (CCX) had a Board-approved tariff that stipulated that fitness studios had to pay CCX to use music with their workout classes, then, if you were a fitness studio and you used a music playlist to boost your aerobic sessions, you had to pay the set fee (percentage of revenues, dollars per month, or other under the tariff) to CCX – or risk being sued by CCX for the unpaid amounts.

The challenge to the conventional wisdom

The conventional wisdom about “mandatory” tariffs was challenged by an argument, advanced most notably and comprehensively by University of Toronto law professor Ariel Katz, which said that the prevailing notion that tariffs were “mandatory” was entirely mistaken and, indeed, inverted: There was no obligation on users to abide by a certified tariff, rather it was the collective society that was bound by the tariff in the sense that the collective society could not charge more than what was set out in the tariff. Users, on the other hand, were entirely free to “opt out” of a tariff if they so chose. “Opting out” meant the user could elect to not enter into a licensing agreement with a collective and not pay the stipulated licensing fee and face the risk of a copyright infringement action with damages calculated in the normal way that copyright damages are calculated, or they could assess the legal landscape and conclude that all of their copying activity was already either authorized (via an existing licence directly with a rightsholder) or non-infringing (because it did not entail a “substantial part” of a work, or constituted fair dealing, or was sheltered by one of the many tailored exceptions to infringement set out in the Copyright Act), or some combination of the foregoing options. The upshot was that tariffs were voluntary for users – there was no obligation on users to pay the price set out in a tariff.

The case

The dispute in the York v Access Copyright case arose from the issue of reproduction rights – essentially, teachers and students making photocopies of written materials for educational purposes. From the mid-1990s to the early 2010s, most educational institutions outside of Quebec (which has its own collective for reprographic rights, COPIBEC) had entered into licensing agreements with the Access Copyright collective. Those agreements set a license fee whose payment permitted the institutions to reproduce a stipulated amount of the works within Access Copyright’s repertoire. For a variety of reasons, Access Copyright elected to move from a licensing model to a tariff model, and in 2010 they filed a proposed tariff with the Copyright Board which would cover educational institutions.

In 2011, York gave notice that it was “opting out” of the tariff (both the interim tariff that had been approved by the Board and whatever final “certified” tariff was eventually approved), on the basis that in carrying out its copying activities it did not need any of the rights being licensed by Access Copyright (whether via bilateral agreement or under the tariff). York’s decision seemed fortuitous: In 2012, the Copyright Act was amended by the Copyright Modernization Act, which added “education” to the list of enumerated “fair dealing” purposes, and the Supreme Court of Canada released its decision in Alberta v Access Copyright (2012 SCC 37), which concluded that high school teachers who photocopied portions of books and articles for distribution to their students could shelter under the “private study” fair dealing purpose.

Access Copyright commenced a claim against York in 2013, arguing that York was obliged to pay Access Copyright pursuant to the interim tariff (and, eventually, the certified tariff). The trial decision at the Federal Court concluded that the tariff was, indeed, mandatory. But York appealed the decision, and was successful at the Federal Court of Appeal, thus giving rise to declarations of astonishment among many members of the copyright bar.

The “momentous” decision

In deciding that tariffs are not mandatory, the FCA decision conducted a review of the wording and legislative history of the Copyright Act provisions pertaining to collectives that might best be described as “forensic”. Overturning the trial court’s decision on this point, the FCA concluded that tariffs are not binding on non-licensees. Since, in the court’s description, licensing arrangements are consensual by their nature, they cannot be “mandatory”, as no one can be “forced” to enter into a licensing agreement to which they do not want to be a party.

The FCA’s decision is not without precedent. The Supreme Court of Canada, in its 2015 decision in Canadian Broadcasting Corp. v. SODRAC 2003 Inc. (2015 SCC 57) had held (at para. 113) that “licences fixed by the Board do not have mandatory binding force over a user … a user retains the ability to decide whether to become a licensee and operate pursuant to that licence, or to decline”. That earlier finding was echoed by the FCA in York v Access Copyright when it concluded (at para. 202) that “tariffs are not mandatory which is to say that collective societies are not entitled to enforce the terms of their approved tariff against non-licensees”.

It must be emphasized that the conclusion that tariffs are not mandatory does not mean that a user does not face potential liability for using copyright-protected materials without agreeing to become a tariff licensee. Rather, it means that the nature (and extent) of the liability is different. If tariffs were mandatory, and assuming that a user’s activity infringes the rights of the copyright owner and no defence or exception is available to the user, then failure to pay the amounts stipulated in a tariff would mean that the scope of the non-paying user’s liability would be measured in part by the amounts stipulated in the tariff (and in part on the basis of other factors including, potentially, punitive damages). But because, on the basis of the FCA decision, tariffs are not mandatory, then non-paying user’s liability is measured by the “normal” damages assessment for copyright infringement (which, at the plaintiff’s election, could entail statutory damages as well as punitive damages). Of course, whether a “normal” damages assessment would result in amounts owing which were higher or lower than the amounts stipulated in the tariff remains to be seen.

The decision also does not mean that some existing (and potential) tariffs are not, for all practical purposes, effectively “mandatory” by virtue of the nature of the activity and/or the attributes of particular collectives. For example, if you are a commercial radio station playing music, becoming a SOCAN licensee pursuant to its certified tariff is a foregone conclusion. The same goes for many music uses in Canada, by either Canadian businesses or those that offer music-related products and services in Canada.

Still less is the decision an indication that agreeing to a (non-mandatory) tariff is a bad business decision. A tariff can represent a worthwhile value proposition, bundling efficiency and some measure of certainty for users who seek those attributes (at least for the years covered by the tariff), and in some cases, facilitating a licensing approach which does not rely on the potential ambiguities which might arise from a reliance on the ever-evolving concept of fair dealing. Collectives, copyright owners and users will need to engage in that value analysis on a case-by-case basis, and the determination for many businesses may well fall in favour of tariffs more often than not.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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