Keep Calm, Opt Out, and Carry On

Originally posted on Prof. Katz's blog.

One of the questions that troubles many Canadian universities who need to decide whether to accept Access Copyright offer-that-they-can’t-refuse is what will be the consequences of not signing the AUCC-brokered Model License. One fear, which I have addressed in an earlier post, concerns the risk of being liable for copyright infringement in case that some infringing copies would be made on campus. The other fear is the possibility that the Copyright Board will approve Access Copyright’s Proposed Tariff, and that upon its approval, would become mandatory and retroactive.

The precise effect of an approved tariff is a novel question and there is very little, if any, binding case, and virtually no commentary, and admittedly, my own views on this question have evolved. Therefore, this post reflects some of my recent thinking on this question. In brief, my opinion is that the view that once approved, the tariff will be mandatory is not mandated by the Copyright Act and will be in contrast to basic legal principles. Parliament did not and could not have indented to allow such an outcome, and even if it did, it is doubtful whether this would be a constitutionally valid exercise of its legislative power.[1]

The One-Copy-of-One-Work Theory

The Copyright Board seems to have taken the view that once approved, the tariff would be binding on any university upon the making of even a single protected copy (i.e., a copy that is not licensed or exempt) of a single work from Access Copyright’s repertoire. In a brief notice sent on Aug. 18, 2011 the Board “reminded” the objectors that “an institution’s decision not to avail itself of the interim tariff in no way guarantees that it will bear no liability under the final tariff, that its liability will not be retroactive or that it will not be compelled, pursuant to the final tariff, to provide information about its copying habits during the period between January 1, 2011 and the date on which the final tariff is certified, unless it is certain that neither the institution nor its agents make any protected use of the relevant repertoire during the relevant period or periods to be set out in the final tariff.”

Several weeks later, in its notice from Sept. 13, 2011, the Board made another comment along the same lines: “Opt-out institutions do not know whether they may now be making protected uses requiring their compliance with a final tariff that does not yet exist. They can sever their relationship with Access if, and only if, they make no unauthorized, protected use of the repertoire of Access; that relationship is governed by facts and law, not intentions.” Put differently, the Board’s view is that once a final tariff is approved, it will be binding on any educational institution that makes any unauthorized use of a work from the repertoire of Access Copyright. Moreover, the tariff may be imposed retroactively, and may not only bind institutions to pay the specified royalties, but also comply retroactively with the proposed reporting requirements.

These remarks, however, are not a binding precedent. They were made in the context of a dispute about requiring opt-out universities to answer interrogatories. None of the parties asked to Board to make any ruling on the effect of an approved tariff, no pleadings were made, and in any event, the Board’s jurisdiction is limited to setting tariffs, but not to enforcing them. Ultimately, if the Board certifies the Proposed Tariff, it will be up for the courts to determine the exact effect of the tariff, and the Board has no role to play here. Obviously, courts may interpret the Copyright Act differently, and in my view there is a very solid basis to believe that they will.

The starting point of the analysis is s. 70.15(2), which reads:

Where a tariff is approved under subsection (1), subsections 68(4) and 68.2(1) apply, with such modifications as the circumstances require.

S. 68.2(1), in turn, provides that

Without prejudice to any remedies available to it, a collective society may, for the period specified in its approved tariff, collect the royalties specified in the tariff and, in default of their payment, recover them in a court of competent jurisdiction.

Simply read, s. 68.2(1) could support the “one-copy-of-one-work” theory. It suggests that a collecting society is entitled to collect the royalties specified in an approved tariff and that it can collect those royalties without being required to sue for copyright infringement and go through the painstaking process that such lawsuit involves. Arguably, it would be enough for the collective society to identify a user that engages in an activity covered by an approved tariff and demand payment. Under this view, the user’s obligation to pay the approved royalties does not arise out of her decision to opt-in, but simply by virtue of engaging in an act covered by an approved tariff. The making of a single unauthorized copy of a repertoire work triggers the obligation to comply with the tariff, in a similar way to how a person's status as a resident or a non-resident of Canada determines her liability to pay income tax. According to this interpretation, the obligation to comply with the tariff is, as the Board remarked, a function of “facts and law, not intentions.”

It may be worth mentioning that literally read, s. 68.2(1) could even be understood to entitle the collection of royalties from any uses who falls within the definitions of the tariff without proof of any copying. Needless to say, even the Board does not suggest that this might be the case.

S. 68.2(1) and its Predecessors

As far as I know, there is no case law interpreting s. 68.2(1), let alone case law applying it “with such modifications as the circumstances require” as s. 70.15(2) requires. There is, however, case law, interpreting its predecessors and their operation within the statutory scheme. Courts, including the Supreme Court, have repeatedly explained that the provision allowing collective societies to collect the fees approved by the Board is an aspect of a regulatory regime put in place to control the monopolistic power of those collective societies and prevent abuse.

In Vigneux v. Canadian Performing Rights Society, [1943] S.C.R. 348, the Supreme Court described the history and the main features of statutory scheme in the following way:

Seven years after the Act of 1921 came into force the legislature realized that in respect of performing rights a radical change in the statute was necessary. Societies, associations and companies had become active in the business of acquiring such rights, and the respondents in this case admittedly have more or less successfully endeavoured to get control of the public performing rights in the vast majority of popular musical and dramatico-musical compositions which are commonly performed in public. The legislature evidently became aware of the necessity of regulating the exercise of the power acquired by such societies (I shall refer to them as dealers in performing rights) to control the public performance of such musical and dramatico-musical works. … Under this plan the dealer in performing rights has his sole right to perform any particular musical composition in public qualified by a statutory license vested in everybody who pays or tenders to the dealer a fee, charge or royalty which has been fixed by the Copyright Appeal Board and notified in the Canada Gazette. That seems like a revolutionary change, but it is evident that the legislature realized in 1931 that this business in which the dealers were engaged is a business affected with a public interest; and it was felt to be unfair and unjust that these dealers should possess the power so to control such performing rights as to enable them to exact from people purchasing gramophone records and sheets of music and radio receiving sets such tolls as it might please them to exact.

In 1955, in C.A.P.A.C. v. Sandholm Holdings Ltd., [1955] Ex. C.R. 244, the Exchequer Court held that it had the jurisdiction to enforce the collection of the royalties specified in an approved tariff because it was asked to enforce a statutory remedy for a statutory license. After describing the statutory scheme along the same lines of Vigneaux, the court concluded that

The result is that the performing rights societies have now no right to fix the fees, charges or royalties for the issue or grant of their licenses but in lieu of their former right have been given a statutory right to sue for or collect the fees certified as approved by the Copyright Appeal Board. The fees for a license to perform the musical works in which a performing rights society owns the performing rights are no longer a matter of contract between the society and the user of the music but a matter of statutory fixation by the Copyright Appeal Board.

Because it was asked to enforce a statutory remedy rather than a contract, the court held that it had jurisdiction (otherwise, it would be a matter within the jurisdiction of a provincial court).

The importance of the fact that the collection of royalties specified in an approved tariff is a statutory remedy for a statutory license became more apparent in a case decided in 1987, Performing Rights Organization of Canada Ltd. v. Lion d'or (1981) Ltee [1987] F.C.J. No. 934. In that case, plaintiff PROCAN (the predecessor of SOCAN), sued the owners of a certain cabaret in Saint-Antoine, New Brunswick for copyright infringement. The defendant publicly performed music without obtaining a license from PROCAN, repeatedly declined to obtain such a license, and further made it clear that it had no intention to obtain one in the future. Unfortunately for the plaintiff, the court dismissed the action because PROCAN could not establish that the copyright in the works that were allegedly infringed were part of PROCAN’s lawful repertoire.

The court emphasized that the case was a regular copyright infringement case, rather than an action to collect the royalties approved by the Board, and added that in any event PROCAN could not sue to collect the royalties because the relevant provision, then s. 50(9),

refers to the amounts which the society may ... sue for or collect in respect of the issue or grant by it of licences ... (Emphasis added). I take this to mean that if a person performing these works refuses to take out a licence then subsection 50(9) has no application. Enforcement measures by the society are not in such cases directed to recovering money "in respect of the issue or grant ... of licences" because no licence has been issued. If the society wishes to recover for use of the performing rights, it must then bring an action for infringement of copyright.

A year later, during the reform of 1988, Parliament replaced the above-mentioned s. 50(9) with another provision that, after additional minor tweaks, became the current s. 68.2(1). Unlike the repealed s. 50(9), s. 68.2(1) includes no reference to the terms “license” or “licensee”. Therefore, it might be tempting to conclude that this change reflect Parliament’s intent to make an approved tariff enforceable not only against users who avail themselves to the statutory license, but also against users who choose not to become licensees, and that therefore the tariff is mandatory. This point of view, however, can be easily refuted.

Present Case Distinguished

First, even if the purpose of the amendment was facilitating the collection of royalties by performing rights organizations from recalcitrant commercial users who refuse to pay them without any justification (as might have been the case in Lion d’or), there is a crucial difference between the paradigmatic case of performing rights organizations such as SOCAN dealing with recalcitrant users, and Access Copyright dealing with universities who choose to pursue their educational mandate in good faith and without being married to Access Copyright. Access Copyright administers only part of the works that universities might use, universities obtain licenses from other sources, a significant amount, if not a majority, of copies made on campus may fall under fair dealing or other exceptions, and the advancement of knowledge and learning, the activities at the core of universities’ mandate, are also the core objectives that copyright law is designed to advance. All of that makes the case of universities quite distinguishable from cases such as Lion d’or.

It is no accident that s. 70.15(2) incorporates s. 68.2(1) “with such modifications as the circumstances requires.” Parliament has explicitly instructed courts to consider the difference in circumstances when they are asked to apply s. 68.2(1) beyond its immediate context.

s. 68.2(1) applies to distinctly different types of rights

Second, it is not even clear that change of the statutory language was meant to effect a radical change in regime governing performing rights. The elimination of the licensing terminology from s. 68.2(1) may simply reflect the fact that s. 68.2 applies not only to the licensing of public performance rights by collecting societies such as SOCAN, but also to the collection of equitable remuneration pursuant to s. 19. While the term license is apt for the former, it would be inapt for the latter because makers and performers of sound recordings only have an entitlement to collect “equitable remuneration” for the public performance of sound recordings. Since this is not an exclusive right, it cannot be “licensed”.

S. 68.2(1) did not Create a Fundamental Change

The third and perhaps most important rebuttal of the notion that an approved tariff would be mandatory on users is that the elimination of the licensing terminology in s. 68.2(1) did not (and could not) change the basic nature of the statutory scheme relevant to Access Copyright, namely the “general regime” of ss. 70.1 to 70.191.

The relevant provision is s. 70.1(a), which makes it clear that it applies to a “licensing scheme” in respect to the authorization of acts that fall within the rights granted under s. 3. This regime allows Access Copyright to file with the Board a proposed licensing scheme in the form of a tariff. The Board may approve this licensing scheme (as proposed or with modifications) (s. 70.15) and upon its approval, “no proceedings may be brought for the infringement of [a copyright] against a person who has paid or offered to pay the royalties specified in an approved tariff” (s. 70.17). That is, users who pay or offer to pay the specified royalties benefit from a statutory license, and as a consequence the collecting society becomes entitled to collect the specified royalties.

Since s. 70.1(a) explicitly refers the authorization of acts falling within the exclusive rights under s. 3, it is clear that it cannot create new rights that copyright owners did not previously have, and since the provision uses the term to licensing it also unlikely that Parliament sought to change the legal meaning of a license, which is a term with a well known meaning. In and of itself, a license is a grant by a right-holder of an exclusive use privilege to the licensee. It grants the licensee a privilege to do an act that otherwise would be exclusive to the licensor, and immunes the licensee from infringement claims brought by the licensor. In and of itself, a license does not and cannot create any obligation on the licensee, because a license is neither a contract nor an enactment. As a grant of privilege and immunity it can bind only the grantor, but cannot impose any non-voluntary duty on the grantee.

It is not uncommon, of course, that the grant of a license is correlated with some duties on licensees. Licenses are often granted in the course of, or as part of, contractual relationships, and a “license agreement” may combine a grant of license with contractual obligations. Even without a contract, the grant of a license may be conditional upon the performance or acceptance of certain duties by the licensee. In such cases, the licensee’s immunity is contingent upon compliance with the conditions. However, no duties can be imposed unilaterally on licensees unless licensees voluntarily choose to be bound by these duties.

For example, I may unilaterally announce that I authorize the making of a single copy of this post by any person who pays me $10. If you, the reader, send me $10 and make a reproduction, I will not be able to sue you for copyright infringement. If you make a reproduction without paying me $10, you may be liable for copyright infringement, and if I sue you and prevail, the court may order you to pay an amount that may as well be lower or higher than $10. But the act of reproduction alone does not entitle me to collect $10 from you, unless you have assumed this obligation voluntarily. The change from a voluntary license to a statutory license does not affect this point. The change makes the grant of the license (or its terms) independent of the licensor’s will, but it cannot impose duties on licensees unless they choose to accept them.

The effect of the Board’s approval is that the exclusive rights of the collective society (or of its members) are, in the words of the Supreme Court in Vigneux, “qualified by a statutory license vested in everybody who pays or tenders” the royalties specified in the approved tariff.  The Board’s approval qualifies the rights of the copyright owners who choose to administer their rights collectively. It does not, and cannot, expand those rights and qualify the rights of users. A tariff cannot give copyright owners the power unilaterally to impose new obligations on users. Only an act of Parliament can.

The result is that a person who pays or offers to pay the royalties specified in an approved tariff is not a licensee, and therefore not immune from claims of copyright infringement. If that person infringes copyright, the copyright owner can sue her for copyright infringement. The Act is clear about that, but that’s all. A licensing scheme with respect to rights granted under s. 3 cannot expand the scope of those rights, and the approval of a tariff cannot result in remedies that expand the scope of those rights.

Apparently, however, the Copyright Board’s remarks about the mandatory nature of an approved tariff suggest that in addition to this potential liability, a person who never expressed any intent to become a licensee of Access Copyright, would still be liable to pay the entire royalties specified in an approved tariff and would be bound by all the related terms and conditions if she makes a single infringing copy.

If this view is correct, the implication of this one-copy-of-one-work theory is that by forming a collective and filing a tariff with the Board, copyright owners can obtain greater rights that they would otherwise have. This view misconceives the nature of a license, it turns the notion of a statutory license on its head by holding that it expands the rights of licensors rather than qualifying them, and it purports to transform the Board’s powers from an administrative agency that regulates how collectively administered rights are exercised, into a legislative body that can create and impose new involuntary duties on users. If Parliament had intended to grant such powers to the Copyright Board during the reforms of 1988, or 1997, such an expansive and extraordinary mandate would have to be much more explicit than what might be implied from s. 68.2(1).

The power granted to collectives to collect the royalties specified by the Board has always been inherently connected to the availability of a statutory license to use the works within their repertoires. Even though Parliament recognized a role for collective administration of copyright, this has always been contingent on qualifying the scope of the collectively administered rights and making them available under a statutory license whose terms are determined by the Board. This has been deemed necessary in order to control the monopolistic power of collecting societies and prevent its abuse.

The interpretation that making even a single copy of a single work from a copyright collective’s repertoire would bind a university to pay hundreds of thousands of dollar and bind it to comply with a tariff related terms and conditions turns a protective scheme into an oppressive one. Instead of protecting users from monopolistic abuse when they have no choice but to deal with collective societies, this interpretation creates and amplifies this very abuse by forcing users to deal with collective societies against their will even when they believe that they have a choice.

Whatever the purposes of the 1988 and 1997 amendments had been, it is unlikely that Parliament intended to establish a diametrically opposite regime to the one that it had put in place since the 1930s. In 1943, the Supreme Court explained that the rasion d’etre of the provisions dealing with collective administration of copyright is taking care that the legitimate exercise of copyright will not “be made instruments of oppression and extortion”. There is no indication that Parliament contemplated a radical overhaul and reversal of the regulatory scheme, or that it contemplated delegating a legislative power to the Copyright Board. There are numerous indications that Parliament believed that if collectives were supervised effectively, users would prefer dealing with them instead of clearing rights from other sources, but there is no indication that Parliament intended to force users to deal with collectives when users believe that they have better alternatives.

Conclusion

In sum, s. 68.2(1), at least as applied through s. 70.15(2), provide a statutory remedy for violating the terms of a statutory license. Therefore, it can only apply to users who choose to take advantage of the statutory license by paying or offering to pay the royalties in an approved tariff. Users who decline to take advantage of the statutory license may still be liable for copyright infringement, but they cannot be compelled to comply with the terms of a licensing scheme that they have not chosen to accept. Even though a literal reading of s. 68.2(1) could suggest that an approved tariff would be mandatory on users, when read purposively, the entire statutory scheme and its history does not support this interpretation. Even if this conclusion were wrong, this provision would not immediately apply to Access Copyright’s Proposed Tariff, even if approved, because Parliament explicitly instructs courts to apply s. 68.2(1) “with such modifications as the circumstances require.” It is hard to see how the fact that a university pays hundred of thousands or even millions of dollars in license fees and exercises its fair dealing rights in good faith will not be considered as circumstances that justify a modification of s. 68.2(1).

Moreover, even if s. 70.15(2) did not explicitly require that, courts that will be asked to enforce a tariff will still have at their disposal a plethora of common law rules that can be invoked to prevent the imposition of draconian and disproportional remedies. Furthermore, with respect to copies that could be made either under a tariff or under licenses obtained by a university, it is hard to see how a court, even if inclined to enforce a tariff, would not be required to deduct the license fees that have already been paid.

As I wrote at the beginning of this post, there exact effect of an approved tariff is a novel question, particularly in the context of educational institutions. Despite the analysis in this post, there is always a possibility that courts would interpret s. 68.2(1) literally, or otherwise uphold the validity of the one-copy-of-one-work theory. This post suggested why this would be wrong as a matter of statutory interpretation, and that Parliament did not and could not have intended to create such an outcome. A separate question, which I may address in a later post, is whether the notion of a mandatory tariff would even be a constitutionally valid exercise of Parliament’s legislative power over “copyright” pursuant to s. 91(23) of the Constitution Act, 1867.  There are strong grounds to believe that the answer is “no”. Stay tuned.