Friday, November 28, 2014

More on Recent and Current Developments at and Concerning the Copyright Board of Canada






I recently wrote about the reversal by the Federal Court of Appeal (“FCA”) of the CAFDE decision by the Copyright Board in which the Board erroneously reversed its own originally erroneous decision. I indicated that that this ruling was notable not only for its nature but that it comes at an interesting time in the Board’s history. To wit, the CAFDE decision:
All of this happening while the Board also has on its table a complex and expensive process that has grown to involve foreign expert opinions in order to determine whether or not the 2012 Canadian domestic copyright modernization legislation created a new “making available” right that could result in an additional tariff layer. This is being done in the context of the following matter: CSI - Online Music Services (2011-2013); SOCAN Tariff 22.A - Online Music Services (2011-2013); SODRAC Tariff 6 - Online Music Services, Music Videos (2010-2013). This is taking place as the result of an apparent lack of agreement on the implications of the 2012 Supreme Court of Canada decision in 2012 in the ESA case which dealt, inter alia, with how s. 3 of the Copyright Act is to be construed.

Interestingly, this also comes at a time when the Board has - by its own admission – committed yet another “error”, concerning the issue to which I had alluded in my September 24, 2014  posting about the July 18, 2014 Netflix decision, in which judicial review is already underway as noted above. I indicated on September 24, 2014 that:
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.

Shortly after my September 24, 2014 posting, the Board on October 8, 2014 published this notice which discloses the error and which coincidentally came just a few days before the CAFDE decision of the FCA. It is interesting now to see how the Board apparently is going about the process to “proceed with the correction” of its erroneous decision by the simple “issuance of an erratum by which any reference to downloads would be deleted.”
October 8, 2014
NOTICE OF THE BOARD
On July 18, 2014, the Board issued its decision (the “Decision”) for the Statement of Royalties to Be Collected by SOCAN for the Communication to the Public by Telecommunication, in Canada, of Musical or Dramatico-Musical Works [SOCAN Tariffs 22.D.1 (Internet – Online Audiovisual Services) and 22.D.2 (Internet – User-Generated Content), 2007-2013] (the “Tariffs”). The Tariffs were published in the Supplement of the Canada Gazette, Part I, Vol. 148, No. 29, on Saturday, July 19, 2014.
The Decision was clear with respect to the Board’s intention related to the fact that SOCAN did not have the right to collect royalties for permanent and limited downloads. In fact, paragraph 14 of the Decision reads as follows:
The decision of the Supreme Court of Canada in ESA v. SOCAN meant that SOCAN no longer had the right to collect royalties for permanent downloads and limited downloads. This was reflected in the Board’s recent decision on online music services which had been structured the same way. As a result, neither agreement filed by SOCAN makes reference to downloads.
Although the Board’s intention was clear, the Board made an error in assuming that neither agreement made reference to downloads, and in certifying, as requested by the parties, Tariffs that reflected the terms and conditions of the agreements. Thus, the certified Tariffs do not express the intention of the Board and contain provisions related to downloads. In particular, the definitions and reporting requirements refer to downloads of audiovisual works, limited downloads and permanent downloads.
The Board’s preliminary view is that the Tariffs can be corrected in order to reflect the conclusions of the Board clearly conveyed in its Decision, for the following reasons:
·         First, the Board committed an error when it certified the Tariffs;
·         Second, the error committed by the Board is in expressing its intention with respect to the rights of SOCAN to collect royalties for downloads;
·         Third, the Board’s intention is manifest in paragraph 14 of its Decision;
·         Fourth, because of this error in expressing its manifest intention, the Board is not functus officio; and,
·         Fifth, the Board has the inherent authority to correct such error.
The Board would like to proceed with the correction of the Tariffs by the issuance of an erratum by which any reference to downloads would be deleted. For convenience, we have attached to this notice a marked version of the proposed, corrected Tariffs.
The Board would like to know whether any party objects to this proposal no later than Friday October 17, 2014. If no objection is received, the Board will proceed accordingly.
(highlight added)
The Board has published a proposed redlined version of the proposed deletions  that would be involved, which are quite extensive. Apparently, no parties objected prior to October 17, 2014 as to the Board’s proposed course of action. Whether this unusual turn of events and the FCA’s CAFDE decision of October 20, 2014 will find their way into the Netflix judicial review proceedings underway or have any other repercussions remains to be seen. 

All of this is also happening as the Board continues to be caught between a rock and hard place on the Access Copyright Post-Secondary tariff, wherein the objectors have withdrawn from the hearing and Access Copyright is already setting the stage for judicial review and the Board has apparently been unable to decide whether to have an oral hearing or to proceed on paper. In the latter case, Access Copyright may have additional grounds for review, if it doesn’t like the outcome The K-12 hearing process also seems to remain quite open and active, despite the original hearing having taken place in April and early May of this year. Both of these matters could result in rulings with potentially controversial implications concerning the “mandatory tariff” issue. I will have more to say about these proposed educational tariffs in due course….

And all of this is happening as the Board sits without a Chair. The term of past Chair, retired Judge William Vancise from Saskatchewan, expired on May 13, 2014. He could not have been reappointed beyond that date because that’s the way the statute works. His jurisdiction to remain seized of unfinished matters is spelled out as follows in the Copyright Act:
Concluding matters after membership expires
66.5 (1) A member of the Board whose term expires may conclude the matters that the member has begun to consider.
Marginal note: Decisions
(2) Matters before the Board shall be decided by a majority of the members of the Board and the presiding member shall have a second vote in the case of a tie.
R.S., 1985, c. 10 (4th Supp.), s. 12.

It may not be absolutely clear what is meant by “may conclude matters that the member has begun to consider”.  Whether this could or will become an issue in any of the several outstanding matters now before the Board remains to be seen. Cleary, it would not be appropriate to discuss this question with respect to any particular outstanding matters.

All of this is happening as there is much speculation and suspense about who the Government will appoint as a new Chair and when this will happen. I have taken the liberty months ago of suggesting that the appointment of the next Chair be made from the ranks of sitting or retired judges of the Federal Court or Federal Court of Appeal, many of whom already have considerable expertise not only in copyright law but in administrative law, and in some cases in constitutional, competition, communications and/or other often useful and relevant aspects of the law that can arise before the Board – and the Federal Court of Appeal.  All of the sitting federal courts judges reside in the National Capital region. Some of the retired judges still do. This fact alone would have the additional advantage of saving the government a lot of money.  All of the judicial chairs of the Board since it was established in 1989 have been from the courts of the provinces. Perhaps the time has come for the Government to make an appointment from the ranks of the sitting or retired judges of the Federal Courts.

I have suggested earlier this year that the Board is at a cross-roads. Michael Geist has been far more blunt, saying that “The Board may keep a steady stream of lawyers and economists busy, but it is time to acknowledge that it is broken”. There is increasing concern that that:
  • The Board’s hearing process regularly takes years longer than what we see in the Courts and other comparable tribunals, even in some far more complex cases that may involve patent, competition or communications law. It often takes four years or more for a proposed tariff just to get to hearing stage at the Board and another two years or more for the Board to render a decision. One of the results of these long time lines can be tariffs with a sometimes very long retroactive reach that can come as a shock to many users who are without effective representation at the Board and may have been unaware of the looming liability. 
  •  While the great cost of Board hearings was once considered a safe investment with a virtually guaranteed lucrative return by most collectives and even by bank lenders, this is probably no longer the case. The very high cost of Board proceedings has always been a problem for users, especially those who cannot pass the costs on to their customers. However, these high costs and delays and the uncertainty of the cost/beneficial outcome are now a problem for collectives too. 
  •  The Board’s decisions are, it seems, increasingly and sometimes dramatically being reversed by the Federal Court of Appeal and the Supreme Court of Canada (“SCC”). The SCC decided five cases from the Board in 2012. While the Board was upheld in three of those cases, it was dramatically reversed in two of them. As noted above, the SCC has just taken on another important case involving technological neutrality and possibly other issues. 
  •  While there are calls for greater resources for the Board, it is not clear that this would solve any problems. As I have earlier written, with about 16 full time equivalent employees (FTEs), plus up to five full or part time Board members themselves, this Board is already by far the largest organization of its kind anywhere in the world. It will have a net cost of operations for 2014 in excess of $3.5 million. It is an interesting fact that the Copyright Board already has almost 10% of the budget of the Supreme Court of Canada. The Copyright Board’s net cost of operations for 2014 will be more than $3.5 million. That of the Supreme Court for 2013 was less than $41 million. The Copyright Board typically renders only about two or three (more or less) substantive decisions a year that typically require several years to reach the hearing stage. The hearings are rarely longer than a week or two. There is typically a 1.5 to 2 year (or even more) delay after the hearing before a decision is rendered, and the decisions are often then reversed after judicial review. By contrast, the Supreme Court of Canada in 2013 received 529 applications for leave to appeal, heard 75 appeals and rendered judgment in 78 cases. The average time between a hearing and the rendering of a judgment was 6.2 months. More statistics on the SCC can be found here.
If the Government is sufficiently concerned about these issues, progress can be made in short and medium term in two tangible and achievable ways, as I have earlier suggested:
  • By appointment of a Chair who can hit the ground running at least in terms of both copyright and administrative law, and quite possibly some other useful field such as communications or competition law. As I have suggested, such a person might be found from the ranks of the sitting or retired judges of the Federal Court or the Federal Court of Appeal    
  • Through regulations that the Government can implement pursuant to the existing legislation, either at the behest of the Board or the Departments or both, in order to provide more certainty and efficiency. Examples of such clearly articulated and time-tested regimes can be found close at hand, for example with respect to the Competition Tribunal, the Canadian Industrial Relations Board, the Canadian International Trade Tribunal, the CRTC and other comparable federal tribunals.
While there is much to be said for the informality and normally high degree of collegiality among counsel and in the way the Board works with counsel, the fact remains that there is wide-spread concern that, at the end of the day, things take much too long and costs are much too high for all concerned, including the collectives themselves. With respect to certain issues such as:
  •  the order of proceedings (the apparently unique process of interrogatories first and “pleadings” only  at the very end);
  •  departure from the normal rules of evidence, especially regarding expert witnesses; and,
  •  timing benchmarks,
it would seem that the Board has arguably departed from conventional practices and procedures in the federal administrative law context, where cases are often far more complex and financially significant than Copyright Board cases. For example, the Competition Tribunal recently dealt with the massive and complex Visa and MasterCard credit card case in well under three years from beginning to end.

It seems that the Government is indeed aware of the possibility and need of Board reform through regulations, which can originate either from the Departments or the Board itself or both. Hope springs eternal that we might actually see something sooner rather than later. See the Government Response: Fifth Report of the Standing Committee on Canadian Heritage, "Review of the Canadian Music Industry" (Presented to the House on October 10, 2014).  This report from the Minister of Canadian Heritage indicates that:
On the time it takes for the Copyright Board to issue decisions, the Copyright Act provides the Board with authority to set its internal procedures. I understand that the Board is currently reviewing these procedures in an effort to streamline the royalty-setting process. Changes to that end could be considered as early as fall 2014. Beyond this, the next mandated Parliamentary review of the Copyright Act will be an opportune moment to consider important copyright issues, such as the broader framework in which the Copyright Board operates.
(highlight added)

This may refer to the process announced by the Board about two years ago to embark upon an internal review to be led by the Board’s former General Counsel that was to involve a select few invited outside counsel with experience before the Board, The mandate from the Board’s Vice-Chair was:
….. I expect that the committee will wish to focus generally on (a) proposing possible changes to procedures and processes that may lead to Board proceedings being more efficient and, possibly, less costly, (b) considering improvements to other aspects of Board processes and operations that may enhance the quality of the Board’s services to collectives, copyright users and the public in general, and (c) identifying other issues where improvements may be required and which may be addressed as time and resources allow. As part of this exercice [sic], the committee might also wish to identify more specific recommendations, on a small number of issues, and that can be addressed relatively easily, in the hope of delivering significant improvements fairly rapidly.
(highlight added)
There was notably no mention by the Board of potential suggestions for regulations to be proposed either by the Board or the Government or both.  There was clearly a hint about the possible need for more resources. There was clearly a suggestion that that there are only a “small number of issues” that need be addressed in this process. At the present time, the closest thing that the Board has to rules or regulations is its “Model Directive on Procedure”, which provides little or no guidance to solving the problems as currently perceived.

While it is possible that this non-transparent process may soon provide a report to the Board, the process for dealing with that report in turn is unknown, much less its substance. It would appear unlikely that any dramatic results, much less regulations, will come from this process. All of this may be contrasted with the much more open process of implementing regulations that the Government of Canada through the its departments normally employs.

There is no question that, even though things seem to move very slowly at times at the Board, it has over the last 25 years or so produced a huge volume of tariffs, important decisions and countless procedural rulings that have had an enormous impact on the copyright collective management sector that now generates about $500 million in revenues per annum in Canada. The challenge now is to lower the overall transaction costs of the Board process so that the creators actually reap the benefits they deserve from the copyright system through collective management and users are able to enjoy their rights under the legislation without paying for unnecessary tariffs and with a reasonable degree of certainty at a reasonable cost and in a timely and minimally retroactive manner when tariffs are appropriate. 

 HPK

Friday, November 21, 2014

The Copyright Board of Canada is Reversed Again by the Federal Court of Appeal: the CAFDE Decision

The Copyright Board has been reversed once again by the Federal Court of Appeal (“FCA”), which is the Court responsible for reviewing its decisions when a party believes that there has been a reviewable error. This ruling is styled Canadian Association of Film Distributors and Exporters  v. Society for Reproduction Rights of Authors, Composers and Publishers in Canada (SODRAC) Inc  (hereinafter the “CAFDE” decision) and dated  October 20, 2014. It is particularly notable in terms of its nature and it comes at an interesting time in the Board’s history. In terms of subject matter, the tariff under consideration in this decision concerned “the reproduction, in Canada, of musical works embedded into cinematographic works for the purpose of distributing copies of these cinematographic works for private use or for theatrical exhibition for the years 2009 to 2012.”

The FCA decision was penned by Justice Marc Noël, who was appointed Chief Justice of the Federal Court of Appeal on October 17, 2014. The reasons are replete with recondite Latin terminology but also some very clear and concise basic English. It deals with such arcane issues with Latin names such as functus officio, res judicata, ultra petita, audi alteram partem and other doctrines with English names such as “standard of review” and “manifest intention” and “palpable error” that will whet the appetite of the most learned of scholars of Copyright Board and administrative law jurisprudence.

In basic English, the FCA has essentially reversed a November 2, 2012 decision by the Board because of the Board had erroneously reversed itself based upon what the Board itself characterized as its own “palpable” error due to “inadvertence or distraction” in awarding a tariff that was even higher than the applicant collective asked for and which was inconsistent with the Board’s own reasoning, whatever that reasoning may have been, which was unclear in the end to the FCA. The tariff resulted in a time based cents per minute, per copy formula for synchronization rights for DVDs when it seemed form the reasoning that Board had intended to agree with the Objectors proposal of a straight cents per copy rate.

The Board tried to correct its own "palpable error" and justified its methodology for so doing in an interim decision dated April 26, 2013 as follows:

[27] The Board erred. It believed it was using one
tariff structure while it was actually certifying
another. The decision is not appealable. The error
is of the type that Munger, Fortin and Jacques
make it possible to correct. Its source was
inadvertence or distraction. It was also palpable:
without doubt, what the Board thought CAFDE
sought was not what CAFDE proposed. It follows
that the Board has the authority to reopen its
decision and to correct its error. This pragmatic
conclusion is made all the more necessary by the
fact that on judicial review, the Federal Court of
Appeal would have no choice but to allow the
application. Waiting for that to happen will result
in a sub-optimal use of the time and resources of
that jurisdiction.
(highlight added)

Here are a just a few notable paragraphs from the FCA’s ruling:

[67] Lastly, given the conduct of the proceedings before the Board, I cannot see how this Court could review the Redetermination Decision without considering the Decision to Reopen. In fact, the Decision to Reopen must be seen as part of a continuum that started with the Original Decision and concluded with the Redetermination Decision. The respondents’ preclusion argument must therefore be rejected.

[69] In my opinion, the Board erred in assuming the authority to reopen the matter on this ground. The correction of a palpable error is not one of the recognized exceptions to the functus officio rule, nor is it a ground for redetermination under section 66.52 of the Copyright Act, which authorizes the Board to vary its decision to take into consideration a change in circumstances postdating the decision.

[72] In my opinion, it is the role of the Federal Court of Appeal, seized with an application for judicial review, to determine the validity of the Original Decision. In acting as it did, the Board seems to have performed a judicial review of its own decision, using moreover the standard of review applicable on appeal.

[73] As acknowledged by the Board, the error it committed was not a simple clerical error, and, contrary to its assertion, its source was not “inadvertence” or “distraction” (Decision to Reopen at para. 27). Only the Board’s misunderstanding of the core issue (i.e., the tariff structure proposed by one of the parties) can explain its error. This type of error, however palpable it may be, is not one that permits an exception to be made to the functus officio rule.

[75] It follows that the Board did not have the authority to review its Original Decision to correct the error which it identified.

[77] There is no doubt that the intentional or inadvertent addition of the words “per minute” if that be the case could allow us to make the correction proposed by the applicant. However, it would have to be established that the Board’s manifest intention was to adopt the applicant’s tariff and that these two words were added inadvertently.

[78] Contrary to the applicant’s assertion, I do not believe that it is possible to identify the Board’s manifest intention from reading the Original Decision with the result that the finality of decisions rule cannot be circumvented on the basis of this criterion.


[83] Independently of the Decision to Reopen, it is impossible, in my view, to determine the Board’s manifest intention. In fact, paragraph 166 of the reasons for the Original Decision contains an inherent contradiction which precludes any conclusions regarding the Board’s intention: on the one hand, the Board states that it accepts the applicant’s position, while, on the other, it fixes a “per-minute, per-copy” royalty rate that greatly exceeds what was proposed by the applicant. This may be a simple clerical error – with the inadvertant addition of the words “per minute”—as the applicant argues, or the result of a misunderstanding the tariff proposed by the applicant. The remainder of the Original Decision does not make it possible to resolve this question or to clarify the Board’s intention.


[85] Given that the Redetermination Decision was rendered without jurisdiction, there is no reason to review the issue whether the Board could render this decision without hearing the parties or whether it certified a tariff that is not supported by the evidence. I believe it useful, however, to point out that the Redetermination Decision disposes of substantive legal issues that should not have been dealt with without the input of the parties. For example, the Board could not conclude that a new tariff was required because the schedule proposed by the applicant was “unreasonably low” without giving the applicant an opportunity to demonstrate that this was not the case (Redetermination Decision at para. 16).

 [86] The sixth issue concerns the reasonableness of the Original Decision. For the reasons given above, it must be concluded that the Original Decision did not meet the transparency and intelligibility criteria required by Dunsmuir. Indeed, in claiming to choose one tariff structure but certifying another, the Board said one thing but did the opposite, which makes the decision unreasonable.

….

[88] I would therefore allow both applications for judicial review and set aside the Original Decision and the Redetermination Decision. Moreover, I reluctantly conclude, given the efforts invested to date, that the matter must be referred back to the Board so that it can recommence and complete the process to certify a new tariff for the years 2009 to 2012 as soon as possible. In the meantime, SODRAC Tariff, 2004–2008, will remain in effect. The applicant will be entitled to costs in both dockets for the proceedings instituted before the consolidation order and to only one set of costs in docket A-265-13 for subsequent proceedings.
(highlight added)

So, it’s back to square one for the parties after more than six years. The proposed tariff in this case was filed on March 28, 2008.  Here’s the time line from the Board’s website of what took place, not including the judicial review:
Tariff - Redetermination (July 6, 2013) - Suspended by the Federal Court of Appeal on November 26, 2013 (Files: A-525-12/A-265-13);
Reasons - Redetermination (July 5, 2013);
Reasons - Interim Decision (April 26, 2013);
Interim Decision (December 20, 2012);
Tariff
(November 3, 2012) - Suspended by the Federal Court of Appeal on November 26, 2013 (Files: A-525-12/A-265-13);
Reasons (November 2, 2012)

The Board hearing took place in June of 2010. The Board’s decision was rendered on November 2, 2012 – which is about 2.5 years later. So, whatever the reason for the Board’s initial “palpable error”, it was certainly not due to undue haste.

Actually, there were two FCA proceedings, namely A-265-13 and A-525-12, which were eventually consolidated in the judicial review that led to the October 20, 2014 decision. The successful applicant in this proceeding, CAFDE, had asked both for juridical review and a determination at the same time, apparently hedging its bets in the hope that the Board had made an essentially clerical error by wrongly inserting the words “per minute” into the tariff. But, although the Board accepted that it had erred, it came back with something that none of the parties had asked for and refused to hear further submissions along the way. In hindsight, it simply should have passed on the redetermination because it was “functus officio” (i.e. its decision has been rendered and its jurisdiction concerning the particular matter has been exhausted) and left matters to the Federal Court of Appeal, where they ended up anyway.

So, the FCA heard the judicial review application on the merits on September 4, 2014. On October 20, 2014 - just over six weeks later which is a normal pendency period for this Court - it rendered its 29 page decision to “reluctantly” send the matter back to the Board “so that it can recommence and complete the process to certify a new tariff for the years 2009 to 2012 as soon as possible”, with costs to the Opponent/Applicant in the judicial review.

I shall follow up shortly with more about other recent decisions by and/or concerning the Board, the forthcoming Supreme Court case involving SODRAC and ephemeral rights (and possibly some other important issues) and some pending matters at the Board, including two very important hearings concerning K-12 and Post-Secondary education.


HPK