The Supreme Court of Canada issued its long-awaited decision in SODRAC v. CBC today, a case that has major implications for the role of technological neutrality in copyright. As I noted when it was argued before the court, though the case was about whether CBC should be required to pay royalties for incidental copies necessary to use new broadcast technologies, at stake was something far bigger: the future of technological neutrality under Canadian copyright law.  The case offers wins and losses for both users and creators, but the manner in which the court strongly affirmed the principle of technological neutrality runs the risk of actually undermining technological adoption.

CBC argued that technological neutrality means that it should not pay for incidental copies since it already pays for the use of music in broadcasts. The incidental copies – copies which are made to create the final broadcast version of a program (including copies from the master to a content management system or other internal copies to facilitate the broadcast) – do not generate revenue and are simply made to facilitate use of the music that is paid for through a licence. SODRAC, a Quebec-based copyright collective, countered that CBC had always paid for these copies and that the CBC argument was the reverse of technological neutrality, since it wanted to avoid payment in the digital world for copies that were being paid for with earlier, analog technologies. Other parties such as Music Canada used the case to argue for a narrow interpretation of the technological neutrality principle, claiming that it was just an “interpretative metaphor” (similar arguments about users’ rights being no more than a metaphor were rejected by the Supreme Court in 2012).

The court split 7-2 in the case, with Justice Rothstein writing his final copyright decision for the majority (he retired over the summer) and Justice Abella writing a dissent. On the specific issue of royalty payments, SODRAC emerged victorious as the majority ruled that the incidental copies engage the reproduction right and are compensable. The amount of compensation will be determined by the Copyright Board as the majority also ruled that it did not properly take into account the principle of technological neutrality in setting the rate.

The broader implications for Canadian copyright will take some time to figure out, but both users and creators will find elements they like and dislike. From a user perspective, there are several important, favourable findings. First, technological neutrality is confirmed as far more than a metaphor. Indeed, the court emphasizes that it is an integral part of the law:

The principle of technological neutrality is recognition that, absent parliamentary intent to the contrary, the Copyright Act  should not be interpreted or applied to favour or discriminate against any particular form of technology. It is derived from the balancing of user and right-holder interests discussed by this Court in Théberge — a “balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator”: para. 30. Because this long-standing principle informs the Copyright Act  as a whole, it must be maintained across all technological contexts: “The traditional balance between authors and users should be preserved in the digital environment”.

Second, the court rejects the view – often raised in the Access Copyright context – that more copying necessarily means more royalties.  The majority states:

The notion that “more copies mean more value and thus, more royalties” is appealing in its simplicity. However, it is out of step with the principles of technological neutrality and balance.

Third, the court ruled that the Copyright Board may not compel a user to agree to the terms of a licence against the will of a user. In other words, Copyright Board tariffs are optional, not mandatory. This aspect of the decision will have clear reverberations for Access Copyright as educational institutions have assurances that they can decide for themselves if the collective’s licence is necessary and not have it mandated for them.

While these are important developments for the user community, the hope that technological neutrality would promote greater certainty and adoption of new technologies may have been lost.  As Justice Abella (rightly in my view) states in dissent:

The result of the majority’s conclusions is uncertainty as to the purpose and application of the principle of technological neutrality in the interpretation and application of the Copyright Act , uncertainty as to how users of copyrighted material are to exercise their authorized rights and activities without incurring additional copyright liability, and uncertainty as to the “value” of incidental activities.

The concern stems primarily from the majority’s decision to effectively expand technological neutrality to include not only a functional equivalence analysis (ie. ensuring that functionally equivalent technologies that are doing the same are treated equivalently) but add in a complex layer of valuation that will make judgements on royalties exceptionally subjective and uncertain.

The question of whether technological neutrality had an impact on the incidental copies at issue in this case came down to a matter of statutory interpretation. The majority ruled that the Copyright Act created specific exceptions that addressed broadcasting and that the court could not “do by ‘interpretation’ what Parliament chose not to do by enactment.” Justice Abella in dissent calls for a robust approach to technological neutrality and argues that the exceptions were enacted “in order to maintain technological neutrality, not a comprehensive statement on the content of the reproduction right, or which kinds of copies will trigger it.” She warns that “to find otherwise would trap Parliament in an interminable and losing game of catch-up with swift and unknown technological currents.”

The future complexity from the case comes from the majority’s extensive discussion on how technological neutrality factors into questions of valuation. SODRAC had argued that it did not factor at all. The majority disagreed, concluding that technological neutrality applies to both the interpretation of the Copyright Act and its application. In doing so, the majority identifies factors for the Copyright Board to consider that have nothing to do with the rights held by the rights holder:

Relevant factors will include, but are not limited to, the risks taken by the user, the extent of the investment the user made in the new technology, and the nature of the copyright protected work’s use in the new technology. The Board must assess the respective contributions of, on the one hand, the risks taken by the user and the investment made by the user, and on the other hand, the reproductions of the copyright protected works, to the value enjoyed by the user.  In this case, where the financial risks of investing in and implementing new technology were undertaken by the user and the use of reproductions of copyright protected works was incidental, the balance principle would imply relatively low licence fees to the copyright holder.

While this suggests that incidental copying as part of a new technology will result in a low royalty, the majority assures that the royalty will not be zero:

it will never be the case that, because a user makes a significant investment in technology or assumes substantial risk, royalties for the rights holder will amount to zero. From the moment the right is engaged, license fees will necessarily follow.

This approach is problematic. First, the linking compensation to user investment does not seem relevant for an analysis of value of copyright works. Indeed, if technological neutrality is a foundation of Canadian copyright law (as everyone agrees), why would the amount of the investment in different technologies designed to achieve the same purposes lead to different amounts of copyright royalties? The user investment and the technology used is a red herring and should be viewed as irrelevant.

Second, the automatic triggering of a licence fee similarly runs counter to technological neutrality. The court has previously emphasized the need to prevent imposing additional, gratuitous fees on the user simply for the use of more efficient technologies.  This decision runs directly counter to that, by actually supporting higher royalties for more efficient technologies.

The CBC v. SODRAC case was billed as placing the future of technological neutrality in copyright in the spotlight. It certainly lived up to expectations with the promise that technological neutrality analysis will become an increasingly important – though uncertain – factor, particularly for cases before the Copyright Board of Canada.