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Broadcasters obtain injunction in bid to stem “emerging trend” of pre-loaded set-top boxes

The Federal Court of Canada recently granted three large broadcasters an order for an injunction* against retailers of pre-loaded “plug-and-play” set-top boxes.  The apps pre-loaded on the boxes allow consumers to access TV programs and movies without cable or other subscriptions.  As Madam Justice Tremblay-Lamer observed:

These boxes have several uses for consumers, some of which are perfectly legal and some which skirt around the fringes of copyright law.  This is not the first time a new technology has been alleged to violate copyright law, nor will it be the last.

In her view, the allegations in this particular instance were strong enough to support a prima facie case of copyright infringement and the injunction order.  The matter will proceed to trial at a later date to resolve the various copyright and related issues.

A focus on the copyright issues

Bell, Rogers and TVA/Videotron each have exclusive rights under the Copyright Act to – in lay terms – broadcast, deliver and copy a range of TV programs and movies in Canada.  The television business model relies on broadcasters’ ability to exploit these rights.  The Plaintiffs argued that

pre-loaded set-top boxes represent an existential threat to [their] line of business as piracy is one of the top causes for declining subscriptions for television services in Canada and leads to annual decreases in revenue.

A central question before the Court was whether the set-top box retailers were simply the “conduit” for consumers’ infringing activities, or were instead themselves infringing copyright.  The Copyright Act does provide a limited shield for “conduit” services that provide only the means to deliver copyright-protected programs, images or music:

(1) For the purposes of communication to the public by telecommunication, […] (b) a person whose only act in respect of the communication of a work or other subject-matter to the public consists of providing the means of telecommunication necessary for another person to so communicate the work or other subject-matter does not communicate that work or other subject-matter to the public.

The Court found that this statutory defence was not available to the Defendants.  They had, said the Court, deliberately encouraged consumers to use the set-top boxes to circumvent the broadcasters’ subscription-based services.  They had promoted their set-top boxes to consumers as a means to cancel their cable subscriptions (using slogans such as “Original Cable Killer”), and had also offered tutorials on how to use the pre-loaded apps to obtain “free” programming.   The Court said that these activities “went above and beyond” selling a simple piece of hardware, and instead related to the content of the copyright-protected programming.  This constituted prima facie infringement.

The Court also agreed with the broadcasters that inducing and authorizing consumers to infringe copyright was an additional serious issue to be tried.

The Court’s order not only enjoins the five named retailers from continuing to configure, market and sell the pre-loaded set-top boxes; it allows the broadcasters to serve the order on other retailers who are engaged in the same activities.

 *Thanks to Smart & Biggar for making the link to the decision available online.

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Broadcasters obtain injunction in bid to stem “emerging trend” of pre-loaded set-top boxes

A Brief History of the Broadcast Reproduction Right

The following is a timeline of broadcast reproduction copyright developments, leading to yesterday’s Supreme Court of Canada decision in CBC v. SODRAC.

1980’s: SODRAC, a copyright collective society managing (largely French-language) music reproduction rights, licences the reproduction of musical works in its repertoire to television producers.

1990: Bishop v. Stevens [1990] 2 S.C.R. 467 – The Supreme Court determines that “ephemeral” copies made by a TV broadcaster engage the reproduction right under the Copyright Act. Making copies of musical works to facilitate a broadcast, and actually broadcasting musical works, engage two different rights. Each of those rights may be licensed and paid for separately. Following this decision, SODRAC begins to distinguish between synchronization licences and copies made for other purposes.

1992: CBC and SODRAC negotiate a licence agreement for all copies made by CBC – synchronization and any other copies – for radio and TV. According to SODRAC, this is the first general reproduction rights agreement with a radio and television broadcaster in North America.

1990’s: CBC and other broadcasters begin to make greater use of digital systems to prepare programming for broadcast, gradually replacing older analog systems.

2002: Théberge v. Galerie d’Art du Petit Champlain inc. [2002] 2 S.C.R. 336 – The Supreme Court examines the nature of the reproduction right (must a work be multiplied to be ‘reproduced’? – yes) and emphasizes the balance between the rights of users and copyright owners:

“The proper balance among these and other public policy objectives lies not only in recognizing the creator’s rights but in giving due weight to their limited nature. In crassly economic terms it would be as inefficient to overcompensate artists and authors for the right of reproduction as it would be self-defeating to undercompensate them. Once an authorized copy of a work is sold to a member of the public, it is generally for the purchaser, not the author, to determine what happens to it.”

November 2012: Copyright Board SODRAC-CBC Arbitration Decision – The Board confirms that broadcast-incidental copies are reproductions under the Act, and do not benefit from a statutory exception. The Board finds that there are “clear benefits [to CBC] from copy-dependant technologies”, and SODRAC is entitled to remuneration that reflects those benefits.

November 2012: The Copyright Modernization Act – a broad set of amendments intended to better reflect copyright in the context of modern technologies – enter into force. Among other things, the “ephemeral exception” for broadcast copies is amended and expanded in part.

December 2012: Entertainment Software Association v. SOCAN [2012] 2 S.C.R. 231 – In one of the 2012 “pentalogy” of copyright cases, the Supreme Court determines that the Copyright Board was incorrect to apply a separate “communication” tariff – over and above the reproduction right payment – to downloads of musical works for video games. The principle of technological neutrality requires that the Copyright Act apply equally between traditional and more technologically advanced media.

“There is no practical difference between buying a durable copy of the work in a store, receiving a copy in the mail, or downloading an identical copy using the Internet. Absent evidence of Parliamentary intent to the contrary, we interpret the Act in a way that avoids imposing an additional layer of protections and fees based solely on the method of delivery of the work to the end user. To do otherwise would effectively impose a gratuitous cost for the use of more efficient, Internet-based technologies. The Internet should be seen as a technological taxi that delivers a durable copy of the same work to the end user. The traditional balance in copyright between promoting the public interest in the encouragement and dissemination of works and obtaining a just reward for the creators of those works should be preserved in the digital environment.”

January 2013: Copyright Board Interim SODRAC-CBC Arbitration Decision – The Board extends the 2008-2012 licence on an interim basis pending its final determination of terms to 2016. The Board rejects CBC’s argument that the Copyright Modernization Act amendments provide a statutory exception for its broadcast-incidental copies.

March 2014: CBC v. SODRAC Federal Court of Appeal, [2015] 1 F.C.R. 509. The Federal Court of Appeal rejects the broadcasters’ argument that the Supreme Court’s decision in ESA has overtaken Bishop v. Stevens. Broadcast copies are reproductions under the Act. The Court states, however, that it is “difficult to know how one is to approach technological neutrality post-ESA”, and finds that Bishop v. Stevens determines the outcome unless Bishop is “overturned or disavowed by the Supreme Court”.

November 2015: CBC v. SODRAC Supreme Court 2015 SCC 57.  In a 7-2 split decision, Justice Rothstein, for a majority of the Supreme Court, confirms that broadcast-incidental (or “ephemeral”) copies that facilitate broadcasting are reproductions under the Copyright Act. The bulk of the decision then focuses on valuation of the reproduction right. The majority finds that the Board failed to take the principles of technological neutrality and balance into consideration when setting the fees for the copies.

The majority expressly responds to the Court of Appeal’s call for guidance on how to approach technological neutrality.  Pursuant to ESA, if there is no practical difference in the value to a user as between its old and new technologies, then there should be no difference in valuing the right. The Copyright Board should compare the value derived by the user from the use of the reproduction, considering older and newer technologies. In the present case, if CBC derives greater value from using broadcast-incidental copies in digital technology than it did with its old analog technology, then the copright owner has become entitled to greater royalties for the copies.

The majority recalls that in Théberge, the Court established that copyright law maintains a balance between the rights of copyright owners and users, and that it would be as inefficient to overcompensate artists as it would be self-defeating to undercompensate them. Relevant factors in valuation include the user’s risk and investment in using new technologies, and how making reproductions contributes to value to the user. In this case, the user’s risk and investment were high, and the value of the reproductions to the user were low.  The matter of valuation is sent back to the Copyright Board for reconsideration.

Justice Abella writes a vigorous dissent, agreed to in part by Justice Karakatsanis. The dissent takes issue with the majority’s approach to the principle of technological neutrality, which effectively ties copyright owner compensation to users’ actions that are irrelevant to the rights, and focuses on the value that new technologies create for the user. The dissent distinguishes “media neutrality” (focused on the medium of expression) from “functional equivalence” (focused on what the technology actually does), stating that functionally, broadcast-incidental copies are simply part of the core activity of broadcasting. Just as the Court confirmed in ESA, “technological neutrality operates to prevent imposing additional, gratuitous fees on the user simply for the use of more efficient technologies” […] “SODRAC is not entitled to be compensated for how efficiently CBC uses technology to achieve its broadcast”. The Board’s decision to impose fees for broadcast-incidental copies is unreasonable.

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A Brief History of the Broadcast Reproduction Right

Online Endorsements and “Astroturfing”

Having warned consumers: “Don’t buy into fake online endorsements” last year, the Competition Bureau sent a strong message to the media and marketing industry against astroturfing yesterday.  The Bureau announced that it has entered into a consent agreement with Bell Canada addressing employee-generated reviews and ratings of Bell apps on the iTunes App Store and the Google Play Store.  While Bell reportedly moved quickly to have the reviews and ratings taken down, the Competition Bureau evidently considered that the damage was already done:

“these reviews and ratings created the general impression that they were made by independent and impartial consumers and temporarily affected the overall star rating for the apps.”

Bell has agreed to pay an administrative monetary penalty of $1.25 million and has committed to enhance its corporate compliance program.  The company also proposes to host a workshop to promote “Canadians’ trust in the digital economy”, including online review integrity.

The Canadian Competition Act contains criminal and civil prohibitions against materially false or misleading representations.  The general impression conveyed by the review, rating, tweet, post or other representation is a key element of determining whether it is misleading.

As part of its education, outreach and enforcement programs, the Bureau recently devoted its first edition of The Deceptive Marketing Practices Digest to online advertising, with a focus on online reviews.  The Bureau made a point of noting that “astroturfing is a problem that crosses borders” and highlighting its “excellent working relationship” with its international partners, including the US Federal Trade Commission.   In yesterday’s announcement, the Bureau invited consumers who believe that they have been misled by fake online reviews to call the Bureau’s Information Centre or to file a complaint on its website.

The recent activity and statements around online reviews make it very timely to revisit (or develop) internal compliance policies.  These can include examples of acceptable and unacceptable practices for reviews and ratings, endorsements, disclaimers, and special promotions such as sponsorships and contests.

See also:

 

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Online Endorsements and “Astroturfing”

Balancing the Budget …and Balancing Copyright

The Government of Canada’s Budget Plan for 2015 proposes various measures within the expected areas of tax relief, job creation and economic growth measures.  It also includes a very unexpected proposal to extend the copyright term for sound recordings, to benefit record labels and performers.  The Economic Action Plan puts this forward as follows:

Protection of Sound Recordings and Performances

Economic Action Plan 2015 proposes to amend the Copyright Act so that the term of protection of performances and sound recordings is extended from 50 years to 70 years following the date of the release of the sound recordings.

The mid-1960s were an exciting time in Canadian music, producing many iconic Canadian performers and recordings. While songwriters enjoy the benefits flowing from their copyright throughout their lives, some performers are starting to lose copyright protection for their early recordings and performances because copyright protection for song  recordings and performances following the first release of the sound recording is currently provided for only 50 years.

Economic Action Plan 2015 proposes to amend the Copyright Act to extend the term of protection of sound recordings and performances from 50 to 70 years following the first release of the sound recording. This will ensure that performers and record labels are fairly compensated for the use of their music for an additional 20 years.

The copyright proposal is surprising not only for its inclusion in a budget document, but also for its appearance so soon after the government heralded its delivery of the Copyright Modernization Act.  The 2012 Act was intended to balance and modernize Canada’s entire copyright regime, and was enacted following lengthy and detailed consultations with representatives of all affected stakeholders.

The 2012 Press Release, Harper Government Delivers on Commitment to Modernize Canada’s Copyright Laws,  includes the following statements:

“Our Government recognizes the critical role that modern copyright laws play in protecting and creating jobs in Canada’s digital economy,” said Minister Paradis. “We have delivered on our commitment to modernize Canada’s copyright legislation and strike the right balance between the needs of creators and users.”

“This is the most comprehensive effort to modernize our copyright laws in over a decade,” said Minister Moore. “It is widely supported by creator groups, consumer organizations and the businesses that drive Canada’s economy.”

A critical element of the Copyright Modernization Act is the requirement that Parliament revisit the Copyright Act every five years. This will serve as a reminder to current and future Parliaments and governments of the important role that modern and updated copyright laws play in our economy.

Indeed, section 92 of the Copyright Act calls for a statutory review of the Act every five years by a committee of the Senate, House of Commons, or both.  Section 92 does not preclude amendments between those statutory reviews.  However, the government and stakeholders alike have all recognized that copyright calls for balance.  Achieving that balance calls for careful review and input from all stakeholders.

A further 20 years of protection and fees for sound recordings has been welcomed by the music industry in Canada.  But will this proposed budgetary measure have the effect of making a real difference for the Canadian economy?  And on the copyright side, will it “strike the right balance between the needs of creators and users”?

The Government of Canada has promised to balance the budget.  As the copyright term extension proposal moves forward, we look forward to further discussion on balanced copyright.

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Balancing the Budget …and Balancing Copyright

Let’s Talk TV – CRTC Roadmap to “Maximize Viewer Choice”

The Canadian Radio-television and Telecommunications Commission (CRTC) has issued its fourth “Let’s Talk TV” policy decision on the regulation of the Canadian television system.  Today’s decision is  A World of Choice – A roadmap to maximize choice for TV viewers and to foster a healthy, dynamic TV market.

The new roadmap affects the “basic” TV service Canadian subscribers receive, and adds new options for subscribers to choose additional services on a pick-and-pay or a la carte basis.

We wrote last week about the CRTC’s new regulatory measures geared to creating and showcasing Canadian content, set out in its policy decision The Way Forward – Creating Compelling and Diverse Canadian Programming.  Many of those decisions are geared to industry-based expenditure and exhibition requirements, and will have an indirect or gradual impact on viewers’ TV experience.  By comparison, today’s decisions take direct aim at viewer choice.

Skinny Basic

By March 2016, licensed broadcasting distribution undertakings (BDUs) must offer a small basic, entry-level service that includes:

  • local and regional Canadian over-the-air (OTA) stations;
  • the applicable provincial / territorial educational service;
  • all  mandatory distribution “9(1)(h)” television services – about 15 channels, depending on the market; and
  • the community channel and the proceedings of the provincial legislature (if offered).

The basic package may also include other Canadian OTA stations in markets where fewer than 10 local or regional stations are available; local radio stations; an out-of-province designated educational service, and a set of “US 4+1 signals” (NBC, CBS, ABC, Fox and PBS).  BDUs may not offer any other services in the basic package.

Moreover, the basic package must now be priced at or below $25.   The CRTC had de-regulated the basic package in 1997, stating at that time that deregulation represented “a fundamental change” for subscribers from a “20-year regulatory regime with Commission scrutiny” of basic service rates to a regime driven by market forces only.  With today’s decision, the Canadian regime is back  under Commission control, to further its policy of consumer control.

 Pick and Pay / A la carte 

In 2013, the Governor in Council (Cabinet) issued an Order in Council to the CRTC to report on how to maximize pick-and-pay in Canada.  In response, the CRTC observed that Canadians were getting “a more customized viewing experience” from online platforms, and considered how mandating increased choice and flexibility for television would potentially impact cable and satellite operators, broadcasters, and the production industry.

In today’s decision, the CRTC has taken the position that “it must take positive steps to bring about greater choice and flexibility in the Canadian television system”.

  • By March 2016, all licensed broadcast distributors (BDUs) must offer all discretionary services – meaning those not in the basic service – either on a pick-and-pay basis or in small, “reasonably priced” packages.  These packages may be set by the BDU or by the subscriber.
  • By December 2016, all licensed BDUs must offer all discretionary services on both a pick-and-pay basis and in small packages.

The CRTC noted the risk this “unbundling” poses to the Canadian system and the survival of some Canadian services; its greater concern was the risk it saw in “maintaining the status quo in a context of increased demand for more choice”.

Distribution of non-Canadian TV services

While the Commission entitled its decision “A World of Choice”, the Commission has not changed the process for authorizing the entry of non-Canadian services.  The current List of non-programming services authorized for distribution (the List) includes a range of U.S. and other foreign services, including channels such as A&E, AMC, and MSNBC.   The Commission has authorized services on a case-by-case basis, permitting Canadian services to object to the addition of a new non-Canadian channel on the basis that it will unfairly overlap and compete with its own genre and nature of service.  The Commission will continue to authorize only those non-Canadian services that do not compete with Canadian specialty or pay services.

However, the CRTC is bringing the distribution of non-Canadian services in line with the rules set out in today’s policy regarding consumer choice.  As a condition of authorization – for existing services to remain on the List, and for new services applying to be added – the service must be offered on the basis of pick-and-pay and small packages.  The CRTC has said that “it expects non-Canadian services, as good corporate citizens, to continue to abide by the applicable rules …if they wish to continue to have their programming services available in Canada”.

An Expanded and Stricter Wholesale Code

In 2011, largely in response to what it considered to be imbalances in the wholesale marketplace brought about by “vertical integration” in the industry, the CRTC put in place a new regulatory framework for the commercial arrangements between BDUs, broadcasters, and digital media undertakings.  While the 2011 Code was originally drafted with certain mandatory requirements, the CRTC issued a correction to change various instances of “shall” to “should”.  Subsequently the CRTC applied elements of the Code to some licensees as a condition of licence.

Today, the CRTC not only effectively put the “shall” back into the Code for the industry as a whole, stating that it will be a regulatory requirement, not a guideline, for all licensed undertakings.  The CRTC also indicated that the Code will be expanded to include a number of additional prohibitions and mandatory requirements.  These are intended to ensure that the terms of wholesale agreements do not undermine or hinder choice and flexibility in the retail market.  New provisions, to enter into effect by September 2015, will target agreement terms that address packaging, service penetration and revenue guarantees, rate cards, and marketing.

Today’s decision was the 4th of 5 arising from the CRTC’s Let’s Talk TV Proceeding.  The final decision is expected next week, under the CRTC’s “Protect” banner:  consumer protections, BDU Code of Conduct, industry ombudsman, and accessibility issues.

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Let’s Talk TV – CRTC Roadmap to “Maximize Viewer Choice”