Law Times

Page 12 February 2, 2015 • Law Times www.lawtimesnews.com Canadian Broadcasting Corp. v. SODRAC 2003 Inc. Technological neutrality a key issue in upcoming royalty case By shannon Kari Law Times he concept of techno- logical neutrality will again be in front of the Supreme Court of Canada in an upcoming appeal over the royalties owed for music in "broadcast-incidental copies" made for TV or Internet-based programming. In a case framed as a choice be- tween permitting unfair "royalty stacking" practices imposed by the music industry and limiting the rights of creators to take ad- vantage of technological changes to create new business models, there are likely millions of dollars at stake depending on how the top court rules following hearings set for March 16. The CBC is appealing a Fed- eral Court of Appeal ruling in Canadian Broadcasting Corpora- tion v. SODRAC 2003 Inc. that upheld a Copyright Board deci- sion providing for royalties on ev- ery copy made in the production of a broadcast. SODRAC is a collective society that represents a significant ma- jority of French-language music titles in the country. When a TV program uses a musical work, there are roy- alty agreements to synchronize it within the show as well as to broadcast it. Broadcasters also make numerous digital copies from the master copy for pur- poses such as timing or closed captioning. "Their use is internal and non-remunerative," argues the CBC in its written arguments filed with the Supreme Court. "It is incidental to the main economic activity. Nothing changes except they make more copies," says Marek Nitoslawski, lead counsel for the CBC in its ap- peal and a partner at Fasken Mar- tineau DuMoulin LLP. The Federal Court of Appeal, however, agreed with the repro- duction rights organization that "incidental copies" do add value to the final product. "If techno- logical advances require the mak- ing of more copies of a musical work in order to get an audiovi- sual work that incorporates it to market, those additional copies add value to the enterprise," wrote Justice Denis Pelletier on behalf of the unanimous three-judge panel. The Federal Court of Appeal relied on a 1990 decision by the Supreme Court in Bishop v. Ste- vens that stemmed from a dispute over prerecorded musical perfor- mances. In the CBC case, the Fed- eral Court of Appeal declined to address technological neutrality or the idea that copyright hold- ers should neither gain nor lose in a digital environment in part because it said the Supreme Court hadn't been sufficiently clear in defining the concept. But the series of copyright de- cisions by the top court in 2012 "has clearly paved the way for the argument that Bishop is no longer good law, at least on the particu- lar issues at play here," says Carys Craig, a professor at Osgoode Hall Law School. This argument is the "most bold" made by CBC but it may also be its most successful, says Craig, a founding member of Osgoode's intellectual property law and technology program. "It was unfortunate the Court of Appeal did not more fully em- brace technological neutrality as a guiding principle in its ruling on SODRAC," says Craig. "I would expect the Supreme Court to re- state its importance as a tool in judicial interpretation." The finding that incidental copies attract royalties has qua- drupled the annual fees the CBC must pay to SODRAC to $2.3 mil- lion, according to the broadcast- er's lawyers. As well, they note that the Canadian Musical Reproduc- tion Rights Agency has estimated the potential for annual revenues of $50 million in this area outside of Quebec. The Federal Court of Ap- peal made a "fundamental er- ror in law, namely the rejection of technological neutrality as a guiding principle in the inter- pretation and application of the Copyright Act," wrote Nito- slawski on behalf of the CBC. "The decisions below al- low SODRAC to double-dip by collecting multiple royalties at different stages of the same eco- nomic activity," says the CBC, also describing the practice as royalty stacking. A number of groups are seek- ing intervener status in the Su- preme Court hearing, including Music Canada. In its written arguments seeking leave, Music Canada and a number of other organizations warn against ac- cepting the CBC's arguments. The suggestion that techno- logical neutrality should maintain the status quo for copyright hold- ers would mean there couldn't be any new rights in the digital world, they argue. "Such a result would undermine new business models and create uncertainty that would affect both the licens- ing and enforcement of rights in digital settings," wrote Barry Sookman, a partner at McCarthy Tétrault LLP who's representing Music Canada and four other proposed interveners. LT FOCUS Recognizing the best in Canadian deal-making Recognizing excellence in deal-making Come and celebrate at the 8th annual Canadian Dealmakers awards gala. This event brings together the who's who of corporate executives, deal teams and advisors to recognize dealmakers who have impacted their industry and have strategically positioned their business for innovation, growth, globalization and diversification. Join us at the Canadian Dealmakers awards ceremony on March 5, 2015 at the Royal York Hotel in Toronto. To purchase a table, please contact us at CarswellMedia.Sales@thomsonreuters.com or call 416-649-8841 Learn more about the program and view past winners at www.canadiandealmakers.ca The awards are chosen by a distinguished panel of business leaders: Brent Belzberg Senior Managing Partner, TorQuest Partners Marc-André Blanchard Chair & CEO, McCarthy Tétrault LLP Denyse Chicoyne Board Director for TMX Group, Richelieu Hardware Ltd. and Industrial Alliance George F. J. Gosbee Chair & CEO, Alta Corp Capital Inc. Donald R. Ingram President & CEO, CamCar and Associates Robert Kennedy Dean, Ivey Business School at Western University John H. McArthur Dean Emeritus, Harvard Business School L. Jacques Ménard, C.C., O.Q. Chairman, BMO Nesbitt Burns and President, BMO Financial Group, Quebec Gregory J. Smith President & CEO, InstarAGF Asset Management Inc. L. Scott Thomson President & CEO, Finning International Inc. Frank Vettese Managing Partner & Chief Executive, Deloitte Canada Paul Waldie Editor, Report on Business, The Globe and Mail Signature sponsor Founding partners Gold sponsor Silver sponsor Bronze sponsor Net proceeds go to support Untitled-6 1 2015-01-13 3:08 PM T allegation, including the inva- lidity allegations made by Teva and Riva." In dissenting, Justice Robert Mainville agreed, in part, with Sanofi-Aventis. "In my view, the trial judge's construction of a hypothetical market in which Apotex enters the market free of the regulatory constraints of the NOC Regulations, while the market entry of other po- tential generic manufacturers is impeded by these Regulations, almost invariably ensures that there will be a windfall for Apo- tex and the other generic manu- facturers availing themselves of section 8 of the Regulations in their respective proceedings," he wrote. "This is particularly clear in this case." In its examination of the case, the Supreme Court will decide what the necessary framework is to make the cal- culations for damages. And that guidance, says Mowatt, will lay the foundation for all s. 8 cases that follow. LT Dissent cites s. 8 windfall Continued from page 11

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