On July 15, the Supreme Court affirmed 9-0 the decision of the Federal Court of Appeal that the Copyright Act only requires users to pay one royalty fee (and not two as per the Copyright Board below) to stream works online: Society of Composers, Authors and Music Publishers of Canada v. Entertainment Software Association 2022 SCC 30.
Although all nine judges agreed on the outcome, they split 7-2 over whether the applicable standard of review was correctness, as Justice Malcolm Rowe ruled on behalf the majority, or reasonableness, the default standard for most judicial reviews (as per Canada (Minister of Citizenship and Immigration) v. Vavilov 2019 SCC 65), and as argued for by Justice Andromache Karakatsanis, whose concurring judgment was endorsed by Justice Sheilah Martin.
Justice Malcolm Rowe, Supreme Court of Canada
Counsel said the decision is also noteworthy for its clarification of the role that international treaties play when administrative tribunals and courts interpret domestic legislation.
Justice Rowe’s judgment is a must-read for administrative law practitioners, and for any lawyer interested in copyright, standard of review or statutory interpretation, advised Jay Kerr-Wilson of Fasken Martineau DuMoulin LLP in Ottawa who, with Stacey Smydo and Michael Shortt, represented many of the successful respondents, including the Entertainment Software Association and Entertainment Software Association of Canada, two industry groups representing developers and publishers of videogame software, as well as Bell, Quebecor Media, Rogers and Shaw, who both use copyrighted works and own copyrights.
“This is a very important decision for a number of reasons,” Kerr-Wilson said. “It clarifies the application of copyright law to online activities, including on-demand streaming and downloading. The Supreme Court has described a framework for the enforcement of copyright that maintains the balance between the rights of owners and the rights of users, and interprets the Copyright Act in a technologically neutral manner.”
As well, Justice Rowe reaffirms earlier Supreme Court jurisprudence on the use of treaties in interpreting domestic legislation, while explaining that a treaty is relevant at the “context” stage of statutory interpretation, Kerr-Wilson said. “Where the text permits, legislation should be interpreted so as to comply with Canada’s treaty obligations.”
For lawyers who appear before boards, commissions or tribunals, the new category of correctness review added to the Vavilov analysis is extremely important, he added. “It could open up a few more administrative decisions to review on a correctness standard. For lawyers involved in copyright licensing, the rationalized approach to applying copyright to online content platforms will be key. For copyright licence negotiations it clarifies what rights need to be cleared for various types of online access, and what royalties are payable.”
Jay Kerr-Wilson, Fasken Martineau DuMoulin LLP
“With respect to the copyright issue, this decision will provide certainty to businesses who are engaged in delivering creative content online,” Kerr-Wilson predicted. “This decision simplifies transactions for streaming services by clarifying that only a single payment is required for both making the content available and transmitting the content to end users. It also provides certainty for rights owners that they can enforce their rights, whether their works are being made available for access by streaming or by downloading. There is no gap in protection.”
Lynne Watt, Gowling WLG
“But in some respects, the decision is helpful to authors and composers, the rights holders, in that the court says that a royalty is now payable upon the upload of works,” Watt noted. “So the minute that a service like Apple or Spotify [or] Netflix makes the work available, a royalty is payable, whether or not there's ever any subsequent transmission.”
Watt suggested it is open to SOCAN to argue in future, for example, that a tariff is applicable to a streaming service’s entire catalog, whether or not users access the works online.
With respect to the court’s groundbreaking on standard of review, University of Ottawa law professor Paul Daly pointed out that none of the parties argued for reasonableness review.
“I will say there is a non-negligible risk that lower courts, who have faithfully applied the Vavilov framework for the last two-and-a-half years, will see in today’s decision an invitation to use contextual analysis, based on legislative intent and the rule of law, to expand the limited correctness categories recognized in Vavilov,” Daly remarked.
Sana Halwani, Lenczner Slaght LLP
Halwani noted that there are already fees payable to copyright holders for downloads or streaming of works. “What the copyright holders in this case were arguing is that the act of making a work available online (e.g., by a link on a web page) is sufficient to trigger separate and additional compensation,” she said. The court was clear that “because downloading or streaming works engage only one copyright interest, those activities each only require paying one royalty — a reproduction royalty for downloads, or a performance royalty for streams.”
Halwani added that there may be practical implications for streaming services from the court’s holding that a work is performed as soon as it is made available for on-demand streaming, and that a royalty is payable at that point. “If the work is subsequently streamed by a user, they are considered to be experiencing an already ongoing performance, not starting a new one, and no separate royalty is payable at that point,” she said.
David Fewer, general counsel for The Samuelson-Glushko Canadian Internet Policy & Public Interest Clinic (CIPPIC) at the University of Ottawa, called the judgment “a solid endorsement of the Supreme Court’s recent approach to copyright law, and a welcome decision [because] the court adopted a balanced, technologically neutral, and efficiency-enhancing approach to interpretation of the Act.”
Fewer said CIPPIC believes the Supreme Court’s decision will benefit all stakeholders. “The court addressed the need to ensure that copyright owners had a vehicle for enforcing rights — and being compensated — regardless of whether a service provider was making content available for streams or downloads,” he explained. “At the same time, the court addressed concerns — articulated by CIPPIC and others — that rightsholders not stack royalties in a way that permits them to get paid twice for the same act.Multiple Copyright Board tariff proceedings covering the same activity by the same service cannot promote efficiency, certainty of obligations, or innovation in the provision of online services.”
Fewer noted the court has clarified the rights scheme that attaches to making available for downloads and making available for streams. “In the former, rightsholders rely on a combination of the authorization right and the reproduction right,” he said. “Defendants will be liable for authorizing reproductions where they make a work available for downloading. Making available for streaming, in contrast, involves a combination of the making available provisions and the communications rights. This division will clarify the provisions of the Act applicable to different business models — and different potential infringers.”
Kim Nayyer of Cornell Law School
“The court agreed with our position that, when faced with a legitimate choice between an interpretation that produces different outcomes depending on which technology or format is being used and one that does not, the court should prefer the one that does not,” Nayyer said. “For a library to exercise the reproduction-based rights Parliament granted to it, enabling lending the same resource in digital format as it can lend in print, should not trigger an additional obligation not explicitly provided in a statute,” she said. “For law and other libraries, this is an important affirmation of their ability to fulfill their socially important missions and deliver their services, in compliance with copyright law, as technological modes and public need evolve.”
Vavilov recognized only five categories for correctness review: legislated standards of review; statutory appeal mechanisms; constitutional questions; general questions of law of central importance to the legal system as a whole; and questions related to the jurisdictional boundaries between two or more administrative bodies.
“None of these categories justifies applying a correctness standard of review to situations of concurrent administrative and court first-instance jurisdiction,” Justice Rowe said. “Nevertheless, I would apply a correctness standard of review to the board’s decision. Vavilov did not ‘definitively foreclose the possibility that another category could be recognized as requiring a derogation from the presumption of reasonableness review,’” he reasoned, quoting Vavilov. “In rare and exceptional circumstances, new correctness categories can be recognized when applying reasonableness would undermine legislative intent or the rule of law in a manner analogous to the five correctness categories discussed in Vavilov at paras. 23 and 70.”
Justice Rowe concluded, “This is one of those rare and exceptional circumstances where it is appropriate to recognize a new category of correctness review: when courts and administrative bodies have concurrent first-instance jurisdiction over a legal issue in a statute. Applying correctness to these issues accords with legislative intent and promotes the rule of law.”
While Justices Karakatsanis and Martin agreed that the appeal by SOCAN and Music Canada should be dismissed — in their view because the board’s decision was unreasonable — they argued that the standard of review of the board’s decision should be reasonableness.
“Creating a new correctness category only three years after a majority of the court in Vavilov set out a comprehensive judicial review framework undermines Vavilov’s promise of certainty and predictability,” Justice Karakatsanis said of the judges’ recent Herculean effort to clarify the standard of review framework.
“Vavilov explicitly established a presumption of reasonableness that could only be displaced in five situations.Concurrent jurisdiction at first instance was not among them,” she pointed out. “The creation of a sixth category is simply contrary to the majority reasons in Vavilov.”
Justice Karakatsanis acknowledged that Vavilov did not definitively foreclose the possibility that another category could be recognized in future, but remarked that the establishment of new categories was explicitly reserved for possible circumstances which could not be realistically foreseen. She noted the reasons in Vavilov were based on a thorough review of the relevant jurisprudence, including correctness cases of recent vintage, such as Rogers Communications Inc. v. Society of Composers, Authors and Music Publishers of Canada 2012 SCC 35.
“It is therefore unrealistic to suggest that the court’s own precedent represents a possible set of circumstances that it could not have contemplated,” Justice Karakatsanis wrote. “And neither legislative intent nor the rule of law can make this case rare and exceptional — to conclude otherwise sweeps aside the court’s recently established framework governing the standard of review.”
The genesis of the case before the Supreme Court lay partly in Canada’s 1997 signing of the World Intellectual Property Organization (WIPO) Copyright Treaty, one of two treaties negotiated in aid of adapting international copyright rules to new and emerging technologies. The treaty sets out protections that member countries are to provide to authors. Article 8 of the treaty stipulates authors of literary and artistic works shall enjoy the exclusive right to make their works available to the public in such a way that the public may access these works on demand.
In 2012, Parliament added s. 2.4(1.1) to the Copyright Act, in order to implement treaty rights and protections.The new subsection amended s. 3(1)(f) of the Act to clarify that “communication of a work or other subject‑matter to the public by telecommunication includes making it available to the public by telecommunication in a way that allows a member of the public to have access to it from a place and at a time individually chosen by that member of the public.”
In the context of proceedings to set a tariff for online music services, the Copyright Board of Canada, which shares concurrent first-instance jurisdiction over some aspects of the Act with the courts, concluded that s. 2.4(1.1) deems the act of making works available to be a separately protected and compensable activity. This meant that two royalties would be payable when a work is distributed online: (1)when it is made available online and (2)when the work is actually streamed or downloaded. The Federal Court of Appeal overturned the Board’s decision. It held that Parliament did not intend to create a new compensable “making available” right, and that, properly interpreted, the provision did not subject downloads and streams to two royalties.
The Supreme Court agreed that the Act does not require that users pay two royalties to access works online. It rejected the board’s interpretation, one that the top court said was inconsistent with text and structure of s. 2.4(1.1) and which undermined the purpose of the Act and is not required by art. 8 of the treaty.
Justice Rowe said that the reading of s. 2.4(1.1) that is most consistent with its text, structure, purpose, and context is that the provision clarifies that: (1)s. 3(1)(f) applies to on‑demand streams, and (2)a work is performed as soon as it is made available for on‑demand streaming. “This interpretation is technologically neutral and allows Canada to fulfill its obligations under art.8 of the treaty through a combination of the performance, reproduction, and authorization rights in s. 3(1),” Justice Rowe explained. “If a work is streamed or made available for on˗demand streaming, the author’s performance right is engaged. If a work is downloaded, the author’s reproduction right is engaged. If a work is made available for downloading, the author’s right to authorize reproductions is engaged. There are no gaps in protection. If a work is downloaded or made available for downloading, s. 3(1)(f) is not engaged. If a work is made available for streaming and later streamed, s. 3(1)(f) is only engaged once,” the court held.
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Photo of Justice Malcolm Rowe by Andrew Balfour Photography SCC collection